BIJLI INVESTMENT (P) LTD. v. INCOME TAX OFFICER
[Citation -2007-LL-0105-3]

Citation 2007-LL-0105-3
Appellant Name BIJLI INVESTMENT (P) LTD.
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 05/01/2007
Assessment Year 2002-03
Judgment View Judgment
Keyword Tags initiation of penalty proceedings • non-recording of satisfaction • rebuttable presumption • statutory requirement • concealment of income • imposition of penalty • non-deduction of tax • audited accounts • concealed income • burden of proof • natural justice • quantum appeal • initial burden • tax at source • mens rea
Bot Summary: The issue regarding recording of satisfaction in the assessment order has been dealt with by the jurisdictional High Court as follows: In case of Ram Commercial Enterprises Ltd., their Lordships while observing that satisfaction as to assessee having concealed particulars of his income or furnishing inaccurate particulars of such income is to be arrived at by the AO during the course of any proceedings under the Act which would mean the assessment proceedings without which the very jurisdiction to initiate the penalty is not conferred on the assessing authority by reference to cl. The decision of Hon ble Supreme Court in CIT vs. S.V. Angidi Chettiar 44 ITR 739 and D.M. Manasvi vs. CIT 1972 CTR 437: 86 ITR 557 were also referred wherein it was held that the assessing authority has to form his opinion and record his satisfaction before initiating the penalty proceedings, and merely because the penalty proceedings having been initiated, it cannot be assumed that such a satisfaction was arrived at. The initiation of penalty proceedings was itself bad in law and consequently all the subsequent proceedings leading up to the passing of the penalty order must fail. During the course of penalty proceedings, the assessee is entitled to show and establish by the material and relevant facts, which may go to affect and having direct hearing on the liability for penalty. In National Textiles vs. CIT 164 CTR 209: 249 ITR 125, the Gujarat High Court held that it is not enough for the purpose of penalty that the amount has been assessed as income, the circumstances must show that there was animus i.e. conscious concealment or act of furnishing inaccurate particulars on the part of the assessee. In order to justify the levy of penalty, two factors must co-exist, there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee s income. In National Textiles case, the Gujarat High Court held that it is not enough for the purpose of penalty that the amount has been assessed as income, the circumstances must show that there was animus i.e. conscious concealment or a c t of furnishing inaccurate particulars on the part of the assessee.


This is appeal filed by assessee against order of CIT(A), New Delhi dt. 31st Aug., 2006 for asst. yr. 2002-03 in matter of order passed under s. 271(1)(c) of IT Act, 1961 wherein following common grounds have been taken: "(1) That learned CIT(A) has erred on facts and in law in partly sustaining penalty order of learned AO under s. 271(1)(c). assessee has neither concealed its income nor filed inaccurate particulars of same. addition in assessment as made by AO is based on debatable legal issue. As such penalty on addition Rs. 1,07,500 as sustained by learned CIT(A) is liable to be deleted in toto. (2) That penalty order of learned AO under s. 271(1)(c) as sustained by learned CIT(A) is bad in law and wrong on facts inasmuch as addition on account of fee paid to ROC on which penalty has been levied is based on legal issue and further all material facts were disclosed by assessee in audited books of account and return. (3) That no specific opportunity was provided to assessee as to incorrect particulars or concealments involved. As such too, penalty as levied is unmerited and unlawful and against principles of equity, natural justice and fair play. Accordingly also, penalty deserves to be quashed. (4) That there is no mens rea or contumacious conduct. Penalty is not justified on bona fide difference of law. (5) That penalty order under s. 271(1)(c) as sustained by learned CIT(A) is based on erroneous views and/or non-appreciation of facts and law involved without properly considering material on record and without following case law that clearly support appellant. (6) That penalty as levied is against law and facts of case involved because no satisfaction as to any concealment of income or furnishing any inaccurate particulars of income was recorded in assessment order. As such too penalty levied is unlawful and deserves to be quashed. (7) That grounds of appeal as herein are without prejudice to each other. (8) That assessee respectfully craves leave to add, amend, alter and/or forego any ground(s) at of before time of hearing." Rival contentions have been heard and record perused. Brief facts of case are that penalty levied under s. 271(1)(c) of Act with respect to addition made on account of fee paid to ROC was confirmed by CIT(A). contention of AO while imposing penalty was that alleged payment was capital in nature and, therefore, not allowable as revenue expenditure. It was contended by learned Authorised Representative that full particulars regarding payment of fee were disclosed in audited accounts as well as return of income filed by assessee, thus there was no concealment of any particulars of income shown to Department, merely decline of legal claim does not amount to concealment of income. He, therefore, submitted that no penalty should be imposed for mere decline of legal claim. He further submitted that no satisfaction was recorded by AO while passing assessment order, which is statutory requirement as per verdict of jurisdictional High Court in case of CIT vs. Ram Commercial Enterprises Ltd. (2001) 167 CTR (Del) 321: (2000) 246 ITR 568 (Del) and CIT vs. Super Metal Re-rollers (P) Ltd. (2003) 185 CTR (Del) 349: (2004) 265 ITR 82 (Del). I have considered rival contentions and found that in assessment order dt. 12th Jan., 2005, there was no recording of any satisfaction regarding concealment of income or furnishing of inaccurate particulars of its income. At p. 5, there was only mention of "penalty proceedings under s. 271(1)(c) are being initiated separately". issue regarding recording of satisfaction in assessment order has been dealt with by jurisdictional High Court as follows: In case of Ram Commercial Enterprises Ltd. (supra), their Lordships while observing that satisfaction as to assessee having concealed particulars of his income or furnishing inaccurate particulars of such income is to be arrived at by AO during course of any proceedings under Act which would mean "assessment proceedings" without which very jurisdiction to initiate penalty is not conferred on assessing authority by reference to cl. (c) to s. 271(1)(c) of Act. decision of Hon ble Supreme Court in CIT vs. S.V. Angidi Chettiar (1962) 44 ITR 739 (SC) and D.M. Manasvi vs. CIT 1972 CTR (SC) 437: (1972) 86 ITR 557 (SC) were also referred wherein it was held that assessing authority has to form his opinion and record his satisfaction before initiating penalty proceedings, and merely because penalty proceedings having been initiated, it cannot be assumed that such satisfaction was arrived at. In Diwan Enterprises vs. CIT (2001) 167 CTR (Del) 324: (2000) 246 ITR 571 (Del), it was observed by Delhi High Court that non-recording of satisfaction i n assessment order is jurisdictional defect which cannot be cured. initiation of penalty proceedings was itself bad in law and consequently all subsequent proceedings leading up to passing of penalty order must fail. In CIT vs. Vikas Promoters (P) Ltd. (2005) 194 CTR (Del) 384: (2005) 277 ITR 337 (Del), it was observed by Delhi High Court that recording of satisfaction before drawing inference for purpose of levying penalty while completing assessment under s. 143(3) is mandatory for AO. Provisions of s. 271(1)(c) are penal in nature, must be strictly constitute and confirmation of satisfaction should be apparent from orders itself, it is not for Court to go into mind of authorities to trace reasons from file of such authorities. Similar view has been taken by jurisdictional High Court in case of CIT vs. Auto Lamps Ltd. (2005) 196 CTR (Del) 459: (2005) 278 ITR 32 (Del), Shri Bhagwant Finance Co. Ltd. vs. CIT (2005) 196 CTR (Del) 462: (2006) 280 ITR 412 (Del). We have considered submissions of learned Departmental Representative and also deliberated on case laws cited by him which pertains to other High Court, with regard to recording of satisfaction in assessment order itself. I am unable to agree with learned DR as we are working under jurisdictional High Court of Delhi so decisions of jurisdictional High Court are binding on Tribunals working under it. I am bound to follow these orders of jurisdictional High Court which have consistently taken view that in case satisfaction in assessment orders has not been recorded by AO, initiation of penalty proceedings under s. 271(1)(c) of Act and orders passed thereof is nullity. Even on merit, we found that assessee has disclosed all material facts in return of income and there was no conscious or deliberate concealment. Mere disallowance of expenditure, does not make case fit for imposition of penalty under s. 271(1)(c) of Act. There is no dispute to well-settled legal proposition that penalty proceedings are distinct and different from assessment proceedings. Findings in assessment proceedings are not conclusive. entire material available should be considered afresh by authorities before imposing penalty under s. 271(1)(c). Explanation to s. 271(1)(c) provides rule of evidence raising rebuttable presumption in certain circumstances. No substantive right is created or annulled thereby. substantive law relating to levy of penalty is preserved. initial burden of proof is cast on assessee to establish presumption arising in certain cases. assessee can discharge onus either by direct evidence or circumstantial evidence or by both. cumulative effect of all facts should be taken into consideration. During course of penalty proceedings, assessee is entitled to show and establish by material and relevant facts, which may go to affect and having direct hearing on liability for penalty. Whether there is concealment to make penalty exercisable is normally question of fact. Where burden of proof in given case has been discharged on set of facts, is also question of fact. burden is cast on assessee to offer bona fide explanation. There are also plethora of judgments to effect that findings recorded or conclusion drawn in deciding quantum appeal, are neither conclusive nor binding. For this proposition reliance may be placed on judgment of Hon ble Kerala High Court in case of CIT vs. Pawan Kumar Dalmia (1987) 66 CTR (Ker) 167: (1987) 168 ITR 1 (Ker) and judgment of Hon ble Allahabad High Court in case of Banaras Textorium vs. CIT (1988) 67 CTR (All) 191: (1988) 169 ITR 782 (All) and also judgment of Hon ble Delhi High Court in case of CIT vs. Chetan Dass Lachhman Dass (1995) 214 ITR 726 (Del). considerations in penalty proceedings are different from those in quantum proceedings. It is trite law that merely because addition has been made and confirmed in appeal, levy of penalty is not automatic. In National Textiles vs. CIT (2000) 164 CTR (Guj) 209: (2001) 249 ITR 125 (Guj), Gujarat High Court held that it is not enough for purpose of penalty that amount has been assessed as income, circumstances must show that there was animus i.e. conscious concealment or act of furnishing inaccurate particulars on part of assessee. In present case, appellant s conduct and explanation offered by it shows that there was no conscious or intentional act of appellant to conceal or furnish inaccurate particulars of income. In order to justify levy of penalty, two factors must co-exist, (i) there must be some material or circumstances leading to reasonable conclusion that amount does represent assessee s income. It is not enough for purpose of penalty that amount has been assessed as income, and (ii) circumstances must show that there was animus i.e., conscious concealment or c t of furnishing of inaccurate particulars on part of assessee. Explanation has no bearing on factor No. 1 but it has bearing only on factor No. 2. Explanation does not make assessment order conclusive evidence that amount assessed was in fact income of assessee. No penalty can be imposed if facts and circumstances are equally consistent with hypothesis that amount does not represent concealed income as with hypothesis that it does. If assessee given explanation which is unproved but not disproved i.e., it is not accepted but circumstances do not lead to reasonable and positive inference that assessee s case is false, explanation cannot help Department because there will be no material to show that amount in question was income of assessee. Alternatively, treating Explanation as dealing with both ingredients (i) and (ii) above, where circumstances do not lead to reasonable and positive inference that assessee s explanation is false, assessee must be held to have proved that there was no mens rea or guilty mind on his part. Absence of proof acceptable to Department cannot be equated with fraud or wilful default. In instant case, disallowance of expenditure for non-deduction of tax at source does not lead to inference that assessee-company had concealed its particulars of income in terms of s. 271(1)(c) of Act. All particulars relating to impugned expenditure were undisputedly furnished before AO as well as in its return of income and audited annual accounts for year ended on 31st March, 2002. All these documents were enclosed with and forming part of return of income filed with Department. Thus, there was no concealment nor furnishing of any inaccurate particulars of income. offence of concealment is direct attempt to hide item of income from knowledge of IT Department. Whereas in instant case assessee has furnished full details in return of income and same were verified as correct by auditor of company. There is no dispute to well-settled legal proposition that penalty proceedings are distinct and different from assessment proceedings. Findings in assessment proceedings are not conclusive. entire material available should be considered afresh by authorities before imposing penalty under s. 271(1)(c). Explanation to s. 271(1)(c) provides rule of evidence raising rebuttable presumption in certain circumstances. No substantive right is created or annulled thereby. substantive law relating to levy of penalty is preserved. initial burden of proof is cast on assessee to establish presumption arising in certain cases. assessee can discharge onus either by direct evidence or circumstantial evidence or by both. cumulative effect of all facts should be taken into consideration. During course of penalty proceedings, assessee is entitled to show and establish by material and relevant facts, which may go to affect and having direct hearing on liability for penalty. Whether there is concealment to make penalty exercisable is normally question of fact. Where burden of proof in given case has been discharged on set of facts, is also question of fact. burden is cast on assessee to offer bona fide explanation. There are also plethora of judgments to effect that findings recorded or conclusion drawn in deciding quantum appeal, are neither conclusive nor binding. For this proposition reliance may be placed on judgment of Hon ble Kerala High Court in case of Pawan Kumar Dalmia (supra) and judgment of Hon ble Allahabad High Court in case of Banaras Textorium (supra) and also judgment of Hon ble Delhi High Court in case of Chetan Dass Lachhman Dass (supra). considerations in penalty proceedings are different from those in quantum proceedings. It is trite law that merely because addition has been made and confirmed in appeal, levy of penalty is not automatic. In National Textiles case (supra), Gujarat High Court held that it is not enough for purpose of penalty that amount has been assessed as income, circumstances must show that there was animus i.e. conscious concealment or c t of furnishing inaccurate particulars on part of assessee. In present case, appellant s conduct and explanation offered by it shows that there was no conscious or intentional act of appellant to conceal or furnish inaccurate particulars of income. In order to justify levy of penalty, two factors must co-exist, (i) there must be some material or circumstances leading to reasonable conclusion that amount does represent assessee s income. It is not enough for purpose of penalty that amount has been assessed as income, and (ii) circumstances must show that there was animus i.e., conscious concealment or c t of furnishing of inaccurate particulars on part of assessee. Explanation has no bearing on factor No. 1 but it has bearing only on factor No. 2. Explanation does not make assessment order conclusive evidence that amount assessed was in fact income of assessee. No penalty can be imposed if facts and circumstances are equally consistent with hypothesis that amount does not represent concealed income as with hypothesis that it does. If assessee given explanation which is unproved but not disproved i.e., it is not accepted but circumstances do not lead to reasonable and positive inference that assessee s case is false, explanation cannot help Department because there will be no material to show that amount in question was income of assessee. Alternatively, treating Explanation as dealing with both ingredients (i) and (ii) above, where circumstances do not lead to reasonable and positive inference that assessee s explanation is false, assessee must be held to have proved that there was no mens rea or guilty mind on his part. Absence of proof acceptable to Department cannot be equated with fraud or wilful default. In instant case, disallowance of expenditure for non-deduction of tax at source does not lead to inference that assessee-company had concealed its particulars of income in terms of s. 271(1)(c) of Act. All particulars relating to impugned expenditure were undisputedly furnished before AO as well as in its return of income and audited annual accounts for year ended on 31st March, 2002. All these documents were enclosed with and forming part of return of income filed with Department. Thus, there was no concealment nor furnishing of any inaccurate particulars of income. offence of concealment is direct attempt to hide item of income from knowledge of IT Department. Whereas in instant case assessee has furnished full details in return of income and same were verified as correct by auditor of company. In view of above discussion I am inclined to agree with learned Authorised Representative, Shri V.K. Garg that action of lower authorities in imposition of penalty was devoid of any merits. In result, appeal filed by assessee is allowed. *** BIJLI INVESTMENT (P) LTD. v. INCOME TAX OFFICER
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