Commissioner of Income Tax vs Mica Wood (P) Ltd.

Madan B. Lokur, J.—The revenue is aggrieved by an order dated 13-4-2007 passed by the Income Tax Appellate Tribunal, New Delhi Bench G in ITA No. 4606/Delhi/2005 relevant for the assessment year 2001-02.

The only question that has arisen in this case is with regard to the levy of penalty on the assessee u/s 271(1)(c) of the Income Tax Act, 1961 (''Act'').

It appears that the assessee had claimed expenses of Rs. 1,30,935 on the foreign travel of its Director to attend a trade exhibition in U.K. The assessee was not able to produce any evidence in support of the expenses incurred and, therefore, the assessing officer disallowed the expenditure. While concluding, the assessing officer noted that penalty proceedings u/s 271(1)(c) of the Act have been initiated separately for furnishing inaccurate particulars of income.

In appeal, the view of the assessing officer was upheld by the Commissioner (Appeals) but the Tribunal reversed both the authorities below.

In the view of the Tribunal, the assessee had not been able to substantiate the expenditure incurred but relying upon a decision of this court in Commissioner of Income Tax Vs. Ram Commercial Enterprises Ltd., , it was held that since the satisfaction of the assessing officer could not be spelt out from the assessment order, there was no satisfaction recorded for the purpose of initiating penalty proceedings u/s 271(1)(c) of the Act.

Reliance was also placed by the Tribunal on Commissioner of Income Tax Vs. Auto Lamps Ltd.,

We may note that a similar view has been taken by this court in Commissioner of Income Tax Vs. B.R. Sharma,

We may also note that the decision of this court in Ram Commercial Enterprises Ltd.''s case (supra) has been approved by the Supreme Court in Dilip N. Shroff Karta of N.D. Shroff Vs. Joint Commissioner of Income Tax, Special Range Mumbai and Another, and Sri T. Ashok Pai Vs. Commissioner of Income Tax, Bangalore,

Learned Counsel for the revenue drew our attention to an order passed by this court in CIT v. Indus Valley Promoters Ltd. (2006) 155 Taxman 223 wherein a Bench of this court referred the following question of law to a Larger Bench on the ground that it was not considered in Ram Commercial Enterprises Ltd.''s case (supra):

Whether satisfaction of the officer initiating the proceedings u/s 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 to the authority? (page 227)

The contention of learned Counsel for the revenue was that in view of a reference having been made to a Larger Bench, either we should refer this appeal to a Larger Bench or await the decision of the Larger Bench.

We have considered the question that has been referred to the Larger Bench and proceed on the basis that that question is answered in the affirmative and in favour of the revenue. All that this would mean is that we need to look at the assessment order to find out whether it is possible to discern therefrom that the satisfaction of the Assessing Authority for imposition of penalty is duly recorded.

In view of the above, we have perused the assessment order with the assistance of learned Counsel for the revenue and find that it is not possible to discern therefrom the satisfaction of the assessing officer for initiating penalty proceedings for furnishing inaccurate particulars of income. There is no doubt that all the facts have been indicated by the assessee and no material fact has been withheld by it. It is only that the assessee was unable to satisfy the assessing officer about the genuineness of its claim but that by itself does not mean that the assessee had furnished inaccurate particulars of its income. We are not at all satisfied, on a reading of the assessment order, that the assessing officer had applied his mind and was satisfied thereafter that the assessee had furnished inaccurate particulars of its income. In this context, it is necessary to note that penalty proceedings are penal in nature and there must be due application of mind by the assessing officer that he is satisfied that penalty proceedings should be initiated. It is not a ministerial or mechanical action that has to be taken by the assessing officer but is a solemn requirement of the law.

13.We have adopted this procedure in a large number of cases such as CIT v. O.K. Hosiery Mills (P) Ltd. (2007) 165 Taxman 515 (Del), CIT v. Bharat Hotels Ltd (2007) 165 Taxman 593 (Del), CIT v. Preeti Aggarwala ITA No. 850/2006, decided on 15-9-2007, CIT v. Smt. Santosh Sharma (2007) 166 Taxman 223 (Del) and CIT v. O.P. Lohia (2008) 167 Taxman 217 (Del).

Under the circumstances, we do not find any reason to interfere with the order passed by the Tribunal since no substantial question of law arises for our consideration.

We find from the assessment order as well as the other orders placed before us that the tax effect in this case is Rs. 51,785. This is well below the limit prescribed by the Central Board of Direct Taxes for filing an appeal u/s 260A of the Act. The revenue has been filing appeals on petty amounts without any consideration of the fact that the Registry of this Court is over burdened with having to deal with such large number of institutions by the Income Tax Department. Appeals of this kind pertaining to petty matters result in relegating to the background other and more important cases of the Income Tax Department where the tax effect is in six to seven figures. Heavy tax effect appeals cannot be taken up by us since our time is spent on petty matters being filed by the revenue.

Under the circumstances, while dismissing this appeal, we impose the costs of Rs. 5,000 which shall be deposited by the revenue within four weeks from today by a cheque drawn in favour of the Registrar General of this court, who will keep the amount for utilisation for Juvenile Justice.