Commissioner of Income Tax vs Dajibhai Kanjibhai

T.D. Sugla, J.—In this departmental reference relating to the assessee''s assessment for the assessment year 1969-70, the Tribunal has referred to this Court the following six questions of law u/s 256(1) of the income tax Act, 1961 (''the Act'') . The questions read thus:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in cancelling the penalty u/s 271(1)(c) of the income tax Act, 1961?

Whether the Tribunal was right in law in holding that the charge of filing inaccurate particulars was unsustainable because the basic fact for framing assessment was made known by the assessee himself by disclosing prize money receipt in Part IV of the return?

Whether, the finding of the Tribunal that the primary ingredient for initiating penalty proceedings was absent in this case as the income tax Officer did not record his satisfaction during the course of assessment proceedings is correct in law?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Inspecting Assistant Commissioner had wrongly applied the Explanation to section 271(1)(c) ?

Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that no opportunity was given to the assessee when the Explanation to section 271(1)(c) was invoked by the Inspecting Assistant Commissioner is sustainable in view of the notice of the Inspecting Assistant Commissioner dated 1-2-1974?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in rejecting the miscellaneous application of the revenue requiring the Tribunal to hold that the Explanation to section 271(1)(c) was invoked and the assessee was given opportunity to refute the charge

For the sake of convenience, we will take up question No. 3 as that is the basic question and if that can be answered in favour of the assessee, no other question will survive. Briefly stated, the facts in this reference are that while completing the assessment u/s 144 of the Act and computing the assessee''s total income at Rs. 3,05,412 as against the declared income of Rs. 250 only, the ITO stated in the last paragraph of the assessment order as under:

Assessed u/s 144 of the Act. Issue notice of demand. Issue notice under sections 274(1)(a) , 273(b) and 271(1)(b) of the Act. Charge interest u/s 217. Give concession in tax as per Taxation Concession Order, 1964.

Though section 271(1)(c) of the Act was not mentioned as one of the sections under which the ITO was satisfied that it was attracted, the IAC to whom the reference was made imposed penalty of Rs. 3 lakhs u/s 271(1)(c) by his order dated 30-3-1974.

The Inspecting Commissioner had, it may be stated, allowed the assessee an opportunity of hearing before passing his order. In appeal filed by the assessee before the Tribunal, a number of grounds were taken. One of the grounds was that the ITO was not satisfied, during the course of assessment proceedings, that the penal provisions of section 271(1)(c) were not attracted and as such, imposition of penalty u/s 271(1)(c) was not justified. The Tribunal accepted this contention and allowed the assessee on this, amongst many other grounds.

Mr. Jetley, the learned counsel for the revenue has fairly taken us through the order of assessment to show that factually it has not been mentioned by the ITO in order of assessment that he was satisfied about the applicability of the provisions of section 271(1) (c) . He, however, stated that the facts referred to in the order of assessment clearly indicate that the assessee concealed his income. On the other hand, Mr. Pikale, the learned counsel for the assessee, relied upon the Supreme court''s decision in the case of Commissioner of Income Tax, Madras, and Another Vs. S.V. Angidi Chettiar, and on a decision of our Court in the income tax Reference No 417 of 1976 in which by order dated 22-12-1988 this Court held that where income was shown in part IV of the return, charge of concealment u/s 271(1)(c) cannot be said to have been established. In our judgment, the legal position in this regard is now well settled. In view of the Supreme Court''s decision (supra) , power to impose penalty u/s 28 of the Indian income tax Act, 1922 corresponding to section 274 of the 1961 Act depends upon the satisfaction of the ITO in the course of proceedings under the Act. It cannot be exercised if he is not satisfied and has not recorded his satisfaction about the existence of the condition specified in clauses (a) , (b) and (c) before the proceedings are concluded. There is no evidence on record to show that the ITO, in this case, was satisfied in the course of assessment proceedings. Therefore, we must hold that the penal provisions of section 271(1)(c) were not attracted in this'' case. The question is, therefore, answered ''accordingly'' in the affirmative and in favour of the assessee. In view of our answer to question No. 3, no other questions survive and are ''accordingly'' not answered. It is made clear that the penalty imposed by the IAC stands hereby quashed. No order as to costs.