Commissioner of Income Tax vs Shyam Raj Singh

Ajay Kumar Mittal, J.—This appeal has been preferred by the Revenue u/s 260A of the income tax Act, 1961 (in short, "the Act"), against the order dated August 31, 2007, annexure A.4 passed by the income tax Appellate Tribunal, Delhi Bench "I" New Delhi in I.T.A. No. 4601/Del/2005 for the assessment year 2001-02. It was admitted on August 18, 2008, to consider the following substantial questions of law:

"(i) Whether, in the facts and in the circumstances of the case, by virtue of the amendment inserted by the Finance Act, 2008, with effect from April 1, 1989, issuance of notice for imposition of penalty is sufficient compliance for initiation of penalty proceedings u/s 271(1)(c)?

(ii) Whether, on the facts and in the circumstances of the case, the hon''ble income tax Appellate Tribunal is right in law in deleting the penalty levied by the Commissioner of income tax (Appeals) on different grounds, than what was stated by the Assessing Officer?"

A few facts relevant for the decision of the controversy involved, as narrated in the appeal may be noticed. The assessee filed a return on October 31, 2001, declaring an income of Rs. 2,67,640. The assessment u/s 143(3) of the Act was completed on February 26, 2004, at the total income of Rs. 4,43,780. The assessee did not prefer any appeal before the Commissioner of income tax (Appeals) (the CIT(A)) against the assessment order. The Assessing Officer levied a penalty of Rs. 46,072 u/s 271(1)(c) of the Act on account of furnishing of inaccurate particulars of his income in respect of the addition amounting to Rs. 1,31,262 on account of cessation of liability as the assessee was not able to explain the difference of Rs. 1,31,262 in the account of Bharat Petroleum Corporation Ltd. (BPCL). The Commissioner of income tax (Appeals), vide order dated October 13, 2005, annexure A.3 dismissed the appeal filed by the assessee holding that the amount of Rs. 1,31,262 was not on account of cessation of liability but represented the difference in the figures recorded in the assessee''s books of account. Aggrieved by the order, the assessee filed appeal before the Tribunal. The Tribunal vide order dated August 31, 2007, annexure A.4 partly allowed the appeal and cancelled the penalty levied by the Assessing Officer on the ground that the Assessing Officer had not recorded satisfaction in the assessment order. It was also observed by the Tribunal that the Commissioner of income tax (Appeals) had no power to change the basis of penalty and reinitiate penalty proceedings in the course of hearing of penalty appeal itself. Hence, the present appeal.

We have heard learned counsel for the appellant and perused the record.

Learned counsel for the appellant contended that in view of the insertion of sub-section (1B) in section 271 of the Act by the Finance Act, 2008 with effect from April 1, 1989, question No. 1 deserves to be decided in favour of the Revenue. As regards question No. 2, it was urged that the Tribunal had erred in law in deleting the penalty levied u/s 271(1)(c) of the Act.

Taking up question No. 1, we find that the Tribunal after examining the entire material before it came to the conclusion that the Assessing Officer had not recorded any satisfaction while initiating the penalty proceedings and thus he had no jurisdiction to levy penalty u/s 271(1)(c) of the Act. The Finance Act, 2008, effective retrospectively from April 1, 1989, had inserted sub-section (1B) in section 271 of the Act, which reads thus:

"(1B) Where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and the said order contains a direction for initiation of penalty proceedings under clause (c) of sub-section (1), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings under the said clause (c)."

The aforesaid provision came up for consideration before this court in Commissioner of Income Tax Vs. Pearey Lal and Sons (EP) Ltd., wherein it was held as under (page 444):

"We are in agreement with above observations. Whether satisfaction existed and was not recorded during assessment is not a matter of form but of substance and the issue has to be gone into from case to case. Absence of satisfaction could not be inferred from the fact that only words used in the assessment order are that proceedings were being separately initiated. In fact, this coupled with the findings of assessment showed that satisfaction existed in the course of assessment itself.

Accordingly, we hold that the view taken by the Tribunal that mere making of mention that penalty proceedings were being separately initiated in the order of assessment did not justify initiation of penalty proceedings, cannot be upheld and is set aside."

Accordingly, question No. 1 is answered in favour of the Revenue. The initiation of penalty proceedings are held to be valid.

Adverting to question No. 2, we proceed to examine whether the levy of penalty of Rs. 46,072 by the Assessing Officer and upheld by the Commissioner of income tax (Appeals) in the facts and circumstances was justified. From the perusal of the order passed by the Assessing Officer, it is discernible that the Assessing Officer imposed penalty u/s 271(1)(c) of the Act on the ground that the amount of Rs. 1,31,262 represented the cessation of liability u/s 41(1) of the Act and wrong disclosure of the balance payable to BPCL amounted to furnishing of inaccurate particulars of income. The Commissioner of income tax (Appeals) held that the amount of Rs. 1,31,262 was not on account of cessation of liability. However, he levied penalty u/s 271(1)(c) of the Act for furnishing of inaccurate particulars of income as there was difference of Rs. 1,31,262 in the account of the BPCL. The Tribunal cancelled the penalty on the ground as noticed hereinabove.

It was not disputed that the Assessing Officer had primarily levied penalty by treating the amount of Rs. 1,31,262 as cessation of liability whereas the Commissioner of income tax (Appeals) did not agree with it but held that the account of BPCL showed less balance and, therefore, there was inaccurate furnishing of particulars of income. The amount of Rs. 1,31,262 was shown payable to BPCL as on March 31, 2000 and March 31, 2001, and, therefore, it would not amount to cessation of liability. The assessee in ground No. 4 before the Tribunal had pleaded that the account of BPCL could not be reconciled as they were not supplying copy of the account. It was only after getting a copy of account from BPCL that the discrepancy in the account was added as income. It was claimed that there was no intentional understatement of income or deliberate furnishing of inaccurate particulars on the part of the assessee. The plea of the assessee is plausible and it cannot be held to be without any substance. Thus, under the circumstances, the levy of penalty of Rs. 46,072 by the Assessing Officer and Commissioner of income tax (Appeals) was not justified. In view of the above, the appeal stands disposed of accordingly.