Commissioner of Income Tax and Others vs Hongo India P. Ltd.

Heard Sri Dhananjay Awasthi, learned counsel for the appellant and Sri R.P. Agrawal, learned counsel appearing for the respondent. There are following five substantial questions of law, formulated by this court while admitting this appeal, vide order dated May 21, 2009:

"Q. 1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in holding that the Assessing Officer has not recorded any positive and categorical satisfaction about concealment in the assessment order under section 271(1)(c) of the Income-tax Act and cancelling the penalty on this ground alone when in the assessment order the satisfaction for initiating penalty is clearly mentioned?

Q. 2. Whether, on the facts and in the circumstances of the case, the ratio laid down by the hon''ble apex court in the case of Commissioner of Income Tax Vs. Prithipal Singh and Co., (2001) 249 ITR 670 : (2001) 118 TAXMAN 330 applies to the case under consideration?

Q. 3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal has erred in law in ignoring that Explanation 4 to section 271 of the Income-tax Act brought on the statute with effect from April 1, 1976, is clarificatory in nature as the Explanation so brought to the main provisions is merely a mandate to explain or clarify certain ambiguities which have crept in, in the statutory provisions (reliance on Commissioner of Income Tax Vs. Mohan Meakin Breweries Ltd., (1991) 192 ITR 134 : (1991) 2 ShimLC 169 and Laxmi Industries Ltd. and Others Vs. Income Tax Officer and Another, (1998) 231 ITR 514 )?

Q. 4. Whether the Income-tax Appellate Tribunal is justified in ignoring the fact of the case that the assessee has not declared the pre-operative income amounting to Rs. 26,63,283 by capitalizing the same with pre-operative expenses thereby furnishing inaccurate particulars?

Q. 5. Whether the Income-tax Appellate Tribunal is legally justified in holding that penalty under section 271(1)(c) of the Income-tax Act is not imposable when the assessed figure is less?"

In our view, there have arisen two more substantial questions of law:

Q. 6. Whether a wrong deduction of an amount duly disclosed in the assessment year can be treated as furnishing of inaccurate particulars of income so as to attract the provisions of section 271(1)(c)?

Q. 7. Whether despite recording of concurrent finding that there is no concealment of income, by the Commissioner of Income-tax (Appeals) and the Tribunal, still imposition of penalty can be justified?

In the present case, it is not in dispute that details of Rs. 26,63,283 were disclosed by assessee in his account books, as under:

The assessee has debited this income of Rs. 26,63,283 out of total preoperative expenses of Rs. 7,57,43,555 as he claimed net pre-operative expenses as Rs. 7,30,84,272. The Tribunal found that said deduction was not correct and the amount of Rs. 26,63,283 ought to have been treated as income, earned during April 1, 1999, to May 31, 1999, for the purpose of assessment.

Penalty order dated January 30, 2003, passed by the Additional Commissioner of Income-tax, NOIDA, in purported exercise of power under section 271(1)(c) of Income-tax Act, 1961 (hereinafter referred to as "the Act, 1961") stated that since there is a wrong deduction by the assessee about the aforesaid income, it amounts to furnishing incorrect particulars of income and, therefore, penalty was liable to be imposed. Obviously, the above authority did not find any concealment of particulars of income but a wrong deduction.

From the record we find that there was no inaccuracy in particulars of income furnished by the assessee. Out of various receipts, the assessee wrongly deducted aforesaid amount from his total pre-operative expenses while making computation of income. Wrong deduction of an amount for computation of income in the return submitted by the assessee is different. It cannot be equated with concealment. In our view it would not amount to furnishing of inaccurate particulars of income or concealment of income so as to attract penalty under section 271(1)(c) of the Act, 1961.

The Commissioner of Income-tax (Appeals) and Tribunal both have recorded concurrent rinding holding that there was no concealment of particulars of income by the assessee. Therefore, penalty under section 271(1)(c) of the Act, 1961, was not attracted. We find ourselves in agreement therewith.

In view thereof, questions Nos. 4, 6 and 7 are answered in favour of the assessee and against the Revenue.

Now, so far as question No. 1 is concerned, it goes without saying that the assessing authority is not required to mention in the assessment order that penal proceedings must be initiated but he is obliged to record existence of ingredients attracting penal provisions so as to justify for penal proceedings.

In Commissioner of Income Tax Vs. Ram Commercial Enterprises Ltd., (2001) 167 CTR 321 : (2000) 246 ITR 568 it was observed that (headnote):

"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 proceedings is not conferred on the assessing authority by reference to clause (c) of sub-section (1) of section 271 of the Income-tax Act, 1961.

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 who has to form his own opinion and record his 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."

Further, in Commissioner of Income Tax Vs. Auto Lamps Ltd., (2005) 196 CTR 459 : (2005) 120 DLT 104 : (2005) 278 ITR 32 , it was observed that (headnote):

"without even mentioning the essential ingredients which the Assessing Officer is obliged to record for initiation of penalty proceedings, the order was passed to initiate penalty proceedings in a routine manner, an apparent violation of the relevant provisions. The Assessing Officer failed to record the requisite satisfaction in consonance with the settled principles of law. Therefore, the order suffered from the infirmity of non-application of mind. The Commissioner (Appeals) and the Tribunal had rightly deleted the penalty. No question of law arose for consideration of the court."

Again, in Commissioner of Income Tax Vs. Vikas Promoters (P) Ltd., (2005) 194 CTR 384 : (2005) 277 ITR 337 : (2005) 145 TAXMAN 300 , it was observed (headnote):

"It is mandatory for the Assessing Officer to record satisfaction before drawing an inference for the purpose of levying penalty while completing the assessment under section 143(3) of the Income-tax Act, 1961. The provisions of section 271(1)(c) are penal in nature, thus must be strictly construed, and the element of satisfaction should be apparent from the order itself. It is not for the courts to go into the mind of the authorities or trace the reasons from the file of such authorities."

Similar view was expressed in Karanvir Singh Gossal Vs. Commissioner of Income Tax and Another, (2012) 254 CTR 96 : (2012) 349 ITR 692 : (2012) 210 TAXMAN 241 and Nainu Mal Hot Chand Vs. Commissioner of Income Tax, (2007) 210 CTR 150 : (2007) 294 ITR 185 .

A Division Bench of this court in Income Tax Appeal No. 62 of 2000--CIT v. E.C.C. Project Pvt. Ltd. (decided on July 25, 2014) [2015] 374 ITR 44 (All), said (page 48):

"We are of the view that, in the instant case, no penalty is leviable under section 271B of the Act when Assessing Officer failed to record its satisfaction in the assessment order pertaining to it. There is no whisper in the assessment order regarding the levy of the penalty. When it so then we find no reason to interfere with the impugned order. The same is hereby sustained along with the reasons mentioned therein."

In view of the discussion made above, question No. 1, is answered in favour of the assessee and against the Revenue.

So far as question No. 2 is concerned we find that therein a dispute pertains to the assessment year 1970-71, when Explanation 4 to section 271(1)(c) was not in existence. After the amendment was made by the Finance Act, 2002, with effect from April 1, 2003, a larger Bench of the apex court in Commnr. of Income Tax-I, Ahmedabad Vs. Gold Coin Health Food Pvt. Ltd., (2008) 218 CTR 359 : (2008) 304 ITR 308 : (2008) 9 JT 312 : (2008) 11 SCALE 492 : (2008) 9 SCC 622 : (2008) 172 TAXMAN 386 : (2008) 2 UJ 1144 , taking the view that the aforesaid amendment is clarificatory, or would apply as if it was the law between April 1, 1976, and April 1, 2003, and even thereafter. The observations made by the court in paragraphs 10 and 17 of the judgment are as under ( pages 314 and 318 of 304 ITR):

"A combined reading of the Committee''s recommendations and the circular makes the position clear that Explanation 4(a) to section 271(1)(c) intended to levy the penalty not only in a case where after addition of concealed income, a loss returned, after assessment becomes positive income but also in a case where addition of concealed income reduces the returned loss and finally the assessed income is also a loss or a minus figure. Therefore, even during the period between April 1, 1976, and April 1, 2003, the position was that the penalty was leviable even in a case where addition of concealed income reduces the returned loss. . .

The above being the position, the inevitable conclusion is that Explanation 4 to section 271(1)(c) is clarificatory and not substantive. The view expressed to the contrary in Virtual Soft Systems Ltd. Vs. Commissioner of Income Tax, Delhi-I, (2007) 207 CTR 733 : (2007) 289 ITR 83 : (2007) 3 JT 125 : (2007) 2 SCALE 612 : (2007) 9 SCC 665 : (2007) 3 SCR 289 is not correct."

The court also considered the decision in CIT v. Prithpal Singh and Co. (supra) and found that same would have no application in the case in hand.

In view thereof, question No. 2 is answered in the negative and we hold that the decision in CIT v. Prithpal Singh and Co. (supra) would have no application to the case in hand.

So far as questions Nos. 3 and 5 are concerned, we find that these questions stand answered by the apex court''s decision in CIT v. Gold Coin Health Food P. Ltd. (supra), therefore, the same have to be answered in favour of the Revenue.

However, the view taken by the Tribunal is unsustainable to the extent the Tribunal has allowed the cross-objection filed by the assessee. Questions Nos. 3 and 5 are answered in favour of the Revenue.

In the result, this appeal is partly allowed. The impugned order passed by Tribunal is set aside to the extent it has allowed the assessee''s cross-objection. The assessee''s cross-objection stands rejected.

However, so far as the decision regarding the dismissal of appeal filed by the Revenue is concerned, we find no error therein and the judgment and order of the Tribunal to that extent shall remain intact. Appeal is partly allowed in the manner as aforesaid.