Commissioner of Income Tax vs National Marble and Sanitary

In this appeal u/s 260A of the Income Tax Act, 1961 (''Act''), the revenue has challenged an order dated 13-1-2006 passed by the Income Tax Appellate Tribunal, Delhi Bench ''F'', New Delhi (''Tribunal'') in ITA No. 3494/Delhi/2005 relevant for the assessment year 2001-02, By the impugned order the Tribunal has set aside the order of the assessing officer(''assessing officer''), confirmed by the Commissioner of Income Tax (Appeals) (''Commissioner (Appeals)'') levying a penalty of Rs. 50 lakhs on the petitioner u/s 271(1)(c)of the Act.

While finalising the assessment for the assessment year 2001-02 by the order dated 23-3-2004, the assessing officer observed at the end of the order as under:

Assessed at an income of Rs. 1,24,57,102. Issue necessary forms. Allow credit for prepaid taxes. Charge interest u/s 234A/B/C/D as per Income Tax Act, 1961. Penalty proceedings u/s 271(1)(c) is being initiated separately.

Thereafter on 30-9-2004, the assessing officer passed a separate order u/s 271(1)(c) of the Act levying a penalty on the petitioner as aforementioned. The appeal filed by the assessee was dismissed by the Commissioner (Appeals) on merits by an order dated 28-7-2005.

The appeal filed by the assessee was allowed by the Tribunal by the impugned order. The Tribunal followed the judgment of this Court in Commissioner of Income Tax Vs. Ram Commercial Enterprises Ltd., and held that since there was no recording of satisfaction of the assessing officer in the order of assessment that penalty proceedings must be initiated, the penalty proceedings are illegal.

At the outset, it requires to be noted that the decision of this Court in Ram Commercial Enterprises Ltd.''s case (supra)has been approved by the Supreme Court in Ditip N. Shroof v. Jt CIT (2007)291 lTR 5192 and T AshokPai v. CIT (2007) 292 ITR 113.

Learned Counsel for the revenue states that another Bench of this Court has in CIT v. Indus Valley Promoters Ltd. (2006) 155 Taxman 223 referred the following substantial question of law to a larger Bench which according to the referring Bench 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 order passed by the authority? (p. 227)

She accordingly submits that this Court should await the decision of the larger Bench.

Assuming the revenue were to succeed before the larger Bench, and the question referred to it is answered in the affirmative, it would mean that it is sufficient that the satisfaction of the assessing officer for initiating penalty proceedings against an assessee u/s 271(l)(c) of the Act is discernible from the assessment order itself and that such satisfaction need not be separately or expressly indicated in the assessment order. In that event the assessment order in the present case would have to be examined to find out if the satisfaction of the assessing officer is discernible. Therefore, without expressing any view on the issue pending consideration by the larger Bench, and presuming that the question referred to it is answered in the affirmative, we proceed to examine the assessment order in the instant case in order to find out whether the satisfaction of the assessing officer that penalty proceedings should be initiated against the assessee u/s 271(1)(c) of the Act is discernible therefrom.

Ms. Prem Lata Bansal, learned Counsel for the revenue submitted that the assessee had accepted that the P&L Account had not reflected excess stock and that he did not have any explanation for the discrepancy. He, in fact, offered the value of the excess stock as additional income for the financial year 2000-01 relevant to the assessment year 2001-02. She also placed emphasis on the observation of the assessing officer in the assessment order to the following effect:

The comparative G.P. statement shows that there is an increase in G.P. But when the stock surrendered is taken separately the same shows a decrease of one per cent. The subsequent year G.P. is also better by one per cent. When the expenditure is observed there is an increase in a lot of expenditure which could not be completely substantiated by vouchers and bills.

She accordingly contended that the above observations indicates the satisfaction of the assessing officer that there was furnishing of inaccurate particulars warranting initiation of penalty proceedings.

Mr. O.S. Bajpayee, learned Counsel for the assessee on the other hand placed documents on record, which were before the assessing officer as well, which explained to some extent the discrepancy in the value of the closing stock.

Considering that these are penalty proceedings, we do not propose to examine in detail the justification provided by learned Counsel for the assessee for the discrepancy in the value of the closing stock. We are of the view that the mere mention of the discrepancy in the figures in the assessment order, which appear to have some bona fide explanation, does not meet-the requirement of the recording by the assessing officer of his satisfaction that penalty proceedings must be initiated. Even in the absence of express words to that effect, no such satisfaction is discernible on a reading of the assessment order. In our view, the penalty proceedings initiated against the assessee cannot, therefore be sustained.

We may mention that we have adopted this procedure in large number of cases, some of which are Commissioner of Income Tax Vs. O.K. Hosiery Mills (P) Ltd., Commissioner of Income Tax Vs. Bharat Hotels Limited, CIT v. Fibro Tech Chemicals (IT Appeal No. 954 of 2006 decided on 14-9-2007), CIT v. Preeti Aggarwala (IT Appeal No. 850 of 2006 decided on 15-9-2007) and CIT v. Smt. Santosh Sharma (2007) 166 Taxman223 (Delhi).

No substantial question of law arises. Dismissed.