Delhi High Court
Commissioner Of Income Tax-V vs M/S Rampur Engineering Co. Ltd. on 27 November, 2008
Author: Ajit Prakash Shah
* HIGH COURT OF DELHI AT NEW DELHI
Reserved on : 14.11.2008
%
Date of decision: 27th November, 2008
+ ITA NOs. 211/2006, 791, 921, 1015, 1044, 1077, 1094,
1120, 1138, 1155, 1159, 1170 of 2005, 45, 79, 80, 105,
127, 167, 177, 193, 197, 213, 221, 251, 252, 306, 312,
315, 323, 326, 329, 331, 332, 339, 345, 417, 460, 490,
491, 492, 534, 548, 562, 565, 583, 590, 591, 600, 604,
635, 647, 657, 660, 664, 751, 752 and 766 of 2006
1. I.T.A. NO. 211/2006
Commissioner of Income Tax-V ....Appellant
versus
M/s Rampur Engineering Co. Ltd. .....Respondent
2 I.T.A. NO. 791/2005
Commissioner of Income Tax ....Appellant
versus
M/s Balka Services (P) Ltd. .....Respondent
3. I.T.A. NO. 921/2005
Commissioner of Income Tax ....Appellant
versus
M/s Canyam Constructions P. Ltd. .....Respondent
4. I.T.A. NO. 1015/2005
Commissioner of Income Tax ....Appellant
versus
M/s Bharat Cine Co. (P) Ltd. .....Respondent
5. I.T.A. NO. 1044/2005
Commissioner of Income Tax ....Appellant
versus
M/s Indus Valley Promoters Ltd. .....Respondent
6. I.T.A. NO. 1077/2005
Commissioner of Income Tax ....Appellant
versus
M/s Model Footwear (Pvt.) Ltd. .....Respondent
7. I.T.A. NO. 1094/2005
Commissioner of Income Tax ....Appellant
versus
M/s Gama Investments Pvt. Ltd. .....Respondent
8. I.T.A. NO. 1120/2005
Commissioner of Income Tax ....Appellant
versus
M/s Baid Credit & Portfolio Pvt. Ltd. .....Respondent
9. I.T.A. NO. 1138/2005
Commissioner of Income Tax ....Appellant
versus
M/s Basant Plasto Chemicals Pvt. Ltd. .....Respondent
10. I.T.A. NO. 1155/2005
Commissioner of Income Tax ....Appellant
versus
M/s Britika Exports (P) Ltd. .....Respondent
11. I.T.A. NO. 1159/2005
Commissioner of Income Tax ....Appellant
versus
M/s Baid Credit Portfolio (P) Ltd. .....Respondent
12. I.T.A. NO. 1170/2005
Commissioner of Income Tax ....Appellant
versus
Sh. Francis Wacziarg .....Respondent
13. I.T.A. NO. 45/2006
Commissioner of Income Tax ....Appellant
versus
M/s Abhishek Auto Industries Ltd. .....Respondent
14. I.T.A. NO. 79/2006
Commissioner of Income Tax ....Appellant
versus
M/s Bora Knitwear (P) Ltd. .....Respondent
15. I.T.A. NO. 80/2006
Commissioner of Income Tax ....Appellant
versus
M/s Singh Enterprises .....Respondent
16. I.T.A. NO. 105/2006
The Commissioner of Income Tax-V ....Appellant
versus
M/s Narain Jewels International Ltd. .....Respondent
17. I.T.A. NO. 127/2006
Commissioner of Income Tax ....Appellant
versus
M/s COSMO Films Ltd. .....Respondent
18. I.T.A. NO. 167/2006
Commissioner of Income Tax ....Appellant
versus
Shri Prakash Chandra Yadav .....Respondent
19. I.T.A. NO. 177/2006
The Commissioner of Income Tax-V ....Appellant
versus
M/s Narain Jewels International Ltd. .....Respondent
20. I.T.A. NO. 193/2006
Commissioner of Income Tax ....Appellant
versus
M/s Ajay Home Products Pvt. Ltd. .....Respondent
21. I.T.A. NO. 197/2006
Commissioner of Income Tax ....Appellant
versus
M/s Ajay Home Products Pvt. Ltd. .....Respondent
22. I.T.A. NO.213/2006
The Commissioner of Income Tax-III ....Appellant
versus
M/s Super Plastronices (P) Ltd. .....Respondent
23. I.T.A. NO. 221/2006
Commissioner of Income Tax ....Appellant
versus
M/s Dass Trading & Holding (P) Ltd. .....Respondent
24. I.T.A. NO. 251/2006
Commissioner of Income Tax-III ....Appellant
versus
M/s S.R. Ice & Cold Storage P. Ltd. .....Respondent
25. I.T.A. NO. 252/2006
Commissioner of Income Tax ....Appellant
versus
M/s Shree Joints International P. Ltd. .....Respondent
26. I.T.A. NO. 306/2006
Commissioner of Income Tax ....Appellant
versus
M/s Goenka Estates (Delhi) Pvt. Ltd. .....Respondent
27. I.T.A. NO. 312/2006
Commissioner of Income Tax-III ....Appellant
versus
M/s Sandeep Ceramics Ltd. ....Respondent
28. I.T.A. NO. 315/2006
Commissioner of Income Tax ....Appellant
versus
Francis Wacziarg .....Respondent
29. I.T.A. NO. 323/2006
Commissioner of Income Tax ....Appellant
versus
M/s Brahmputra Consortium Ltd. .....Respondent
30. I.T.A. NO. 326/2006
Commissioner of Income Tax ....Appellant
versus
Shri Sanjeev Kumar Gupta .....Respondent
31. I.T.A. NO. 329/2006
Commissioner of Income Tax ....Appellant
versus
M/s Dalmia Agencies (P) Ltd. .....Respondent
32. I.T.A. NO. 331/2006
Commissioner of Income Tax ....Appellant
versus
M/s Great Eastern Energy Corp. Ltd. .....Respondent
33. I.T.A. NO. 332/2006
Commissioner of Income Tax ....Appellant
versus
M/s D.G. Housing Projects Ltd. .....Respondent
34. I.T.A. NO. 339/2006
Commissioner of Income Tax ....Appellant
versus
Shri Sanjay Sharma .....Respondent
35. I.T.A. NO. 345/2006
Commissioner of Income Tax ....Appellant
versus
M/s Electrolux Kelvinator Limited .....Respondent
36. I.T.A. NO. 417/2006
Commissioner of Income Tax ....Appellant
versus
M/s Model Footwear (Pvt.) Ltd. .....Respondent
37. I.T.A. NO. 460/2006
Commissioner of Income Tax ....Appellant
versus
M/s Fracht Forwarding & Travels Pvt. Ltd. .....Respondent
38. I.T.A. NO. 490/2006
Commissioner of Income Tax ....Appellant
versus
Late Shri A.R. Chadha
Th. L/H Sh. C. M. Chadha .....Respondent
39. I.T.A. NO. 491/2006
Commissioner of Income Tax ....Appellant
versus
Late Sh. A.R. Chadha
Th. L/H Sh. C.M. Chadha .....Respondent
40. I.T.A. NO. 492/2006
Commissioner of Income Tax ....Appellant
versus
Late Sh. A.R. Chadha
Th. L/H Sh. C.M. Chadha ....Respondent
41. I.T.A. NO. 534/2006
Commissioner of Income Tax ....Appellant
versus
M/s Deeksha Holding Ltd. .....Respondent
42. I.T.A. NO. 548/2006
Commissioner of Income Tax ....Appellant
versus
Ms. Madhushree Gupta .....Respondent
43. I.T.A. NO. 562/2006
Commissioner of Income Tax ....Appellant
versus
M/s Essan Remedies Ltd. .....Respondent
44. I.T.A. NO. 565/2006
Commissioner of Income Tax ....Appellant
versus
Mrs. Lata Chauhan .....Respondent
45. I.T.A. NO. 583/2006
Commissioner of Income Tax ....Appellant
versus
M/s Goodyear India Limited .....Respondent
46. I.T.A. NO. 590/2006
Commissioner of Income Tax ....Appellant
versus
M/s Goodyear India Limited .....Respondent
47. I.T.A. NO. 591/2006
Commissioner of Income Tax ....Appellant
versus
M/s Goodyear India Limited .....Respondent
48. I.T.A. NO. 600/2006
Commissioner of Income Tax ....Appellant
versus
M/s Eastern Holdings (P) Ltd. .....Respondent
49. I.T.A. NO. 604/2006
Commissioner of Income Tax ....Appellant
versus
M/s D.D. Gears Ltd. .....Respondent
50. I.T.A. NO. 635/2006
Commissioner of Income Tax ....Appellant
versus
M/s SRJ Securities
(Now Adinath Capital Pvt. Ltd.) .....Respondent
51. I.T.A. NO. 647/2006
Commissioner of Income Tax ....Appellant
versus
M/s Maharani Paints (India) Pvt. Ltd. .....Respondent
52. I.T.A. NO. 657/2006
Commissioner of Income Tax ....Appellant
versus
M/s Ambuja Agro Industries Ltd. .....Respondent
53. I.T.A. NO. 660/2006
Commissioner of Income Tax ....Appellant
versus
Mr. S. Venkatnarayan .....Respondent
54. I.T.A. NO. 664/2006
Commissioner of Income Tax ....Appellant
versus
M/s Utkal Investment Ltd. .....Respondent
55. I.T.A. NO. 751/2006
The Commissioner of Income Tax-III ....Appellant
versus
M/s SIEL Industrial Estate Ltd. .....Respondent
56. I.T.A. NO. 752/2006
The Commissioner of Income Tax-III ....Appellant
versus
M/s Siel Industrial Estate Ltd. .....Respondent
57. I.T.A. NO. 766/2006
Commissioner of Income Tax ....Appellant
versus
M/s India Crafts .....Respondent
Advocates who appeared for the parties
For the Appellant : Mr. R.D. Jolly, Mr. Sanjeev Sabharwal,
Ms. Prem Lata Bansal, Mr. Prakash Chand
Yadav, Mr. Sanjeev Rajpal, Mr. M.P. Gupta,
Advs.
For Respondents : Mr. O.P. Bajpai, Adv. for respondent in ITA
No. 460/2006
Mr. Gitanju Suraj, Mr. Jatin Zaveri, Advs. for
respondent in ITA 345/2006
Mr. Ajay Vohra, Ms. Kavita Jha, Advs. for
respondents in ITA Nos. 791/05, 583/2006,
590/2006, 591/2006
Mr. V.P. Gupta, Mr. Basant Kumar, Advs. for
respondents in ITA Nos. 1094/2005,
79/2006, 490/2006, 491/2006, 492/2006,
604/2006
Mr. Prakash Kumar, Adv. for respondents in
ITA Nos. 193/2006, 197/2006, 315/2006,
534/2006
Mr. Satyen Sethi, Mr. Johnson Bara, Advs.
for respondents in ITA Nos. 127/2006,
323/2006
CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE BADAR DURREZ AHMED
HON'BLE MR. JUSTICE RAJIV SHAKDHER
1. Whether reporters of the local papers be allowed to see the
judgment ? Yes
2. To be referred to the Reporter or not ? Yes
3. Whether the judgment should be reported in the Digest ? Y
AJIT PRAKASH SHAH, CHIEF JUSTICE
In all these cases, the Income Tax Appellate Tribunal has
either deleted or affirmed the deletion of penalty levied upon the
assessee under Section 271(1)(c) of the Income Tax Act, 1961.
The Tribunal has, while doing so, relied upon the decision of the
Division Bench of this Court in CIT v. Ram Commercial
Enterprises Ltd. (2000) 246 ITR 568 (Delhi) and held that the
authority initiating the penalty proceedings had not recorded its
satisfaction regarding concealment of income or furnishing of
inaccurate particulars thereof by the assessee. The Revenue has
assailed the correctness of the said orders in these appeals.
According to the Revenue, penalty proceedings initiated by the
competent authority should be deemed to be valid so long as the
satisfaction of the authority was discernible from the order made
by it. The fact that the authority had not used the words "I am
satisfied that the assessee has concealed his income or furnished
inaccurate particulars thereof", would be of no consequence. The
true test is whether a reading of the order demonstrates
application of mind by the authority to the question of
concealment and whether satisfaction about such concealment or
furnishing of inaccurate particulars is discernible from the order.
In the light of these submissions, the Division Bench admitted the
appeals for determination of the following substantial question of
law:
"Whether satisfaction of the officer initiating
the proceedings under Section 271 of the
Income Tax Act can be said to have been
recorded even in cases where satisfaction is
not recorded in specific terms but is
otherwise discernible from the order passed
by the authority?"
2. Keeping in view the decision of this Court in CIT v. Ram
Commercial Enterprises Ltd. (supra) and other cases on the
subject, the Division Bench felt that it would be more appropriate
if the question is authoritatively determined by a Full Bench of
this Court and accordingly the matter has been referred to the
Full Bench.
3. We hasten to add that pending reference, sub-Section 1B
has been inserted in Section 271 of the Income Tax Act by
Finance Act, 2008. The said provision purports to create a fiction
by which satisfaction of the assessing officer is deemed to have
been recorded in cases where an addition or disallowance is
made by the assessing officer and a direction for initiation of
penalty proceedings is issued. The said provision is made
effective retrospectively with effect from 1st April, 1989. In some
of the cases forming part of this batch, the assessment orders
were passed after 1st April, 1989. This reference is being
answered only in respect of the cases where assessment orders
were made prior to 1st April, 1989.
4. Learned counsel appearing for the Revenue strenuously
contended that the question whether the authority was or was
not satisfied about any concealment or furnishing of inaccurate
particulars will depend upon the facts of each case and the order
which the authority has made will have to be seen as a whole and
so long as a proper reading of the order demonstrates application
of mind by the authority and so long as satisfaction is discernible
from the finding recorded by the authority initiating the
proceeding, the same should suffice. Learned counsel contended
that if on the facts available on record a clear case of
concealment of income was made out then the Tribunal would
not be justified in deleting the penalty. According to the learned
counsel all such relevant facts available on record will have to be
kept in view by the Tribunal in deciding the question as to
whether the assessing officer has applied his mind to the
question of concealment of income or furnishing of inaccurate
particulars of any such income.
5. On the other hand, learned counsel appearing for the
assessees submitted that the satisfaction as to the assessee
having concealed the particulars of his income or furnished
inaccurate particulars of such income is to be arrived at by the
Assessing Officer during the course of any proceedings under the
Act, which would mean the assessment proceedings, without
which the very jurisdiction to initiate the penalty proceeding is
not conferred on the assessing officer by reference to clause (c)
of sub-section (1) of Section 271 of the Income Tax Act. Learned
counsel submitted that what actually prevailed with the Tribunal
is the absence of any finding recorded by the assessing officer in
the order of the assessment conferring jurisdiction for initiation of
penalty proceedings. According to the learned counsel the
decision of this Court in Ram Commercial Enterprises (supra)
laid down the correct position of law.
6. Section 271(1)(c) of the Income Tax Act, 1961 provides:
"271 (1) If the income Tax Officer, or the
Appellate Assistant Commissioner in the
course of any proceedings under this Act is
satisfied that any person-
(c) has concealed the particulars of his
income or deliberately furnished
inaccurate particulars of such income,
he may direct that such person shall pay by
way of penalty, -
......................................................"
This is the provision as it stood at the relevant time. This
provision fell for consideration of the Supreme Court in D.M.
Manasvi v. Commissioner of Income Tax, Gujarat, II
Ahmedabad (1972) 86 ITR 557 (SC) wherein the Supreme Court
held that what is contemplated by sub-section (1) of Section 271
is that the Income Tax Officer or the Appellate Assistant
Commissioner should have been satisfied in the course of
proceedings under the Act regarding matters mentioned in the
clauses of that sub-section. It is, however, not essential that
notice to the person proceeded against should have been issued
during the course of the assessment proceedings. Satisfaction in
the very nature of things precedes the issue of notice and it
would not be correct to equate the satisfaction of the Income Tax
Officer or Appellate Assistant Commissioner with the actual issue
of notice. The issue of notice is a consequence of the satisfaction
of the Income Tax Officer or the Appellate Assistant
Commissioner and it would be sufficient compliance with the
provisions of the statute if the Income Tax Officer or the Appellate
Assistant Commissioner is satisfied about the matters referred to
in clauses (a) to (c) of sub-section (1) of Section 271 during the
course of proceedings under the Income Tax Act even though
notice to the person proceeded against in pursuance of that
satisfaction is issued subsequently. The Court referred to the
decision of the Constitution Bench in the case of Commissioner
of Income-tax, Madras, and Anr. v. S.V. Angidi Chettiar
(1962) 44 ITR 739 (SC) wherein Shah J. speaking for the Court
while dealing with Section 28 of the Indian Income Tax Act, 1922,
observed:
"The power to impose penalty under Section
28 depends upon the satisfaction of the
Income Tax officer in the course of
proceedings under the Act; it cannot be
exercised if he is not satisfied about the
existence of conditions specified in clauses
(a), (b) or (c) before the proceedings are
concluded. The proceeding to levy penalty
has, however, not to be commenced by the
Income Tax Officer before the completion of
the assessment proceedings by the Income
Tax Officer. Satisfaction before conclusion of
the proceeding under the Act, and not the
issue of a notice or initiation of any step for
imposing penalty is a condition for the
exercise of the jurisdiction."
7. In Ram Commercial Enterprises Ltd. (supra) the
argument of the Revenue was that on the facts available on
record a clear case of concealment of income was made out and,
therefore, the Tribunal was not justified in deleting the penalty. It
was argued that all such relevant facts which were available on
record were not kept in view by the Tribunal and, therefore, the
findings arrived at by it are perverse and not binding on the High
Court. The Division Bench following the law laid down in the case
of D.M. Manasvi (supra) held:
"11. .... The law is clear and explicit.
Merely because this court while hearing this
application may be inclined to form an
opinion that the material available on record
could have enabled the initiation of penalty
proceedings that cannot be a substitute for
the requisite finding which should have been
recorded by the assessing authority in the
order of assessment but has not been so
recorded.
12. A bare reading of the provisions of
Section 271 and the law laid down by the
Supreme Court makes it clear that it is the
assessing authority which has to form its
own opinion and record its satisfaction
before initiating the penalty proceedings.
Merely because the penalty proceedings
have been initiated, it cannot be assumed
that such a satisfaction was arrived at in the
absence of the same being spelt out by the
order of the assessing authority. Even at the
risk of repetition we would like to state that
the assessment order does not record the
satisfaction as warranted by Section 271 for
initiating the penalty proceedings...."
8. The view taken in Ram Commercial Enterprises (supra)
has been followed in Diwan Enterprises v. Commissioner of
Income Tax (2000) 246 ITR 571 (Delhi) and Commissioner of
Income Tax v. J.K. Synthetics Ltd. (1996) 219 ITR 267 (Delhi).
Same is the view taken by the Bombay High Court in
Commissioner of Income-tax v. Dajibhai Kanjibhai (1991)
189 ITR 41 (Bom).
9. In our opinion, the legal position is well settled in view of
the Supreme Court decisions in Commissioner of Income Tax,
Madras. and Anr. v. S.V. Angidi Chettiar (supra) and D.M.
Manasvi v. Commissioner of Income Tax, Gujarat, II
Ahmedabad (supra), that power to impose penalty under
Section 271 of the Act depends upon the satisfaction of the
Income Tax Officer in the course of the proceedings under the
Act. It cannot be exercised if he is not satisfied and has not
recorded his satisfaction about the existence of the conditions
specified in clauses (a), (b) and (c) before the proceedings are
concluded. It is true that mere absence of the words "I am
satisfied" may not be fatal but such a satisfaction must be spelt
out from the order of the Assessing Authority as to the
concealment of income or deliberately furnishing inaccurate
particulars. In the absence of a clear finding as to the
concealment of income or deliberately furnishing inaccurate
particulars, the initiation of penalty proceedings will be without
jurisdiction. In our opinion, the law is correctly laid down in Ram
Commercial Enterprises (supra) and we are in respectful
agreement with the same. The reference is answered
accordingly.
10. Let the individual cases be listed before the appropriate
Bench on 4th December, 2008 for hearing and disposal.
Chief Justice
Badar Durrez Ahmed, J
Rajiv Shakdher, J
27 November, 2008
th
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