Saurav Diesel Sales and Services vs Commissioner of Income Tax

D.N. Baruah, J.—As per the direction given by this court in Civil Rule No. 5(M) of 1993 (see [1995] 216 ITR 307), the following questions have been referred by the Income Tax Appellate Tribunal for opinion of this court u/s 256(2) of the Income Tax Act, 1961 (for short, "the Act") :

" 1. Whether, on the facts and in the circumstances of the case, the Tribunal committed manifest error of law in confirming the penalty imposed u/s 271(1)(c) of the Income Tax Act, 1961, solely on the basis of reasons given in the assessment order and without considering ; the entirety of the facts and circumstances as well as the legal position relevant to the issue ?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in setting aside the order of the Commissioner of Income Tax (Appeals) cancelling the penalty imposed by the Deputy Commissioner of Income Tax (Assessment), Special Range, on mere surmises in the absence of a clear finding in regard to furnishing" of inaccurate particulars of income in the orders passed by the lower authorities as well as in its own order ?"

For the purposes of answering the questions the facts are :

The assessee is a registered firm. In the course of assessment proceedings on the basis of the returns filed by the assessee an amount of Rs. 3,15,833 was disallowed u/s 40A(3) of the Act by the Deputy Commissioner of Income Tax (Assessment). On appeal to the Commissioner of Income Tax (Appeals), the amount was reduced to Rs. 2,76,658. On further appeal before the Income Tax Appellate Tribunal, the order of the Commissioner of Income Tax (Appeals) was confirmed by dismissing the appeal. In the course of assessment a penalty proceeding was initiated by the Assessing Officer u/s 271(l)(c) of the Act on the ground of furnishing inaccurate particulars of income and thereafter a penalty of Rs. 2,76,658 was imposed. This was challenged by the assessee before the Commissioner of Income Tax (Appeals) and after hearing the parties, the Commissioner of Income Tax (Appeals) cancelled the penalty proceeding; u/s 271(1)(c) of the Act. On further appeal before the Income Tax Appellate Tribunal by the Revenue, the Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and directed the Assessing Officer to recompute the penally u/s 271(1)(c) of the Act. The assessee requested the Tribunal to refer the question which was however refused. Situated thus, the assessee had approached this court by filing an application (Civil Rule No. 5(M) of 1993) and hence the present reference.

We have heard Dr. A.K. Saraf, learned counsel appearing on behalf of the assessee, and Mr. U. Bhuyan, learned junior standing counsel for the Revenue.

Dr. Saraf submits that there being no material whatsoever regarding concealment of income or furnishing inaccurate particulars of income, the Assessing Officer had no jurisdiction to initiate penalty proceedings u/s 271(1)(c) of the Act. Dr. Saraf further submits that unless there is some material on the record the authority shall have no jurisdiction to initiate penalty proceedings and pass order accordingly. Learned counsel further submits that the proceeding u/s 271(1)(c) of the Act is a proceeding quasi-criminal in nature and unless there is material on the record regarding concealment of income or giving inaccurate particulars of income, no action can be initiated under the said section. Section 271(1)(c) of the Act is quoted below :

" 271. (1) If the Income Tax Officer or the Appellate Assistant Commissioner (or the Commissioner (Appeals)) in the course of any proceedings under this Act, is satisfied that any person-- ....

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, - .

he may direct that such person shall pay by way of penalty."''

The section itself indicates that the Assessing Officer must be satisfied regarding concealment of income or furnishing inaccurate particulars of such income. There must be grounds or materials before the Assessing Officer to come to such finding. The Assessing Officer, in his order u/s 271(1)(c) of the Act, observed thus :

" In the course of assessment proceedings penal proceedings u/s 271(1)(c) were initiated for furnishing of inaccurate particulars of income by the assessee. Accordingly, a show-cause notice u/s 271(1)(c)/274 was issued to the assessee-firm as to why an order u/s 271(1)(c) imposing a penalty should not he made. The case is again refixed. Sri G.R. Sharma, authorised representative of the assessee-firm appeared. The case is heard and discussed with him. The authorised representative of the assessee submitted a written explanation in this connection. But the explanation is not satisfactory. The assessee could not furnish any cogent reason. I, therefore, hold that the assessee-firm has furnished the inaccurate particulars of income and as such I impose penalty of Rs. 2,90,672 as minimum penalty u/s 271(1)(c) of the Income Tax Act, 1961."

On reading of the above order, it appears that there was no material whatsoever before the Assessing Officer at the time of initiation of penalty proceedings.

Mr. U. Bhuyan, on the other hand, argues before us that the order of the Tribunal and the order passed by the Assessing Officer at the time of initiation of penalty proceedings clearly indicate that there were sufficient materials for initiation of proceedings u/s 271(1)(c) of the Act.

We have gone through the order passed by the Tribunal and also the order passed by the Assessing Officer.

Dr. Saraf has drawn our attention to a decision of this court in Akshay Bhandar Vs. Commissioner of Income Tax, In the said case, this court had the occasion to deal with the similar matter. While disposing of the case this court observed thus {at page 333) :

" '' If in an appropriate case, the Tribunal or the fact-finding body is satisfied by the evidence on record and inference drawn from the record that the assessee was not guilty of any fraud or any gross or wilful neglect and if the Revenue had not adduced any further evidence, then in such case, the assessee cannot come within the mischief of the section and suffer the imposition of penalty. That appears to be the true effect of the Explanation. ''

From the above decision, it is abundantly clear that the fact-finding body, namely, the Income Tax Officer or the appellate authority has to decide whether on the basis of certain materials which are acceptable materials that the assessee had committed fraud in concealment of income. We have gone through the judgment of the Tribunal. We do not find any finding in this regard.

Dr. Saraf, learned counsel for the Revenue, has strenuously argued that after the amendment of 1964 the word ''deliberately'' has been deleted and, therefore, the Revenue Department is relieved of the onus of proving the mens rea which was obligatory prior to 19(54 amendment."

In the said case, it is further observed as follows (at page 333) :

" It is true that by the said amendment, deletion of the word ''deliberately'' which preceded the word ''concealed'', shifted the onus to prove the mental state to the assessee. We are of the view that the onus that has been shifted is rebuttable. It also does not mean that the Income Tax Officer or the Tribunal should not look into the fact as to whether the assessee-firm fraudulently concealed the income, We do not find any finding in that regard. "

We have gone through the order passed by the Assessing Officer who initialed the penalty proceedings. We do not find any material for initiation of the proceeding. Merely because the Assessing Officer disbelieves the return by itself would not be sufficient for initiation of a proceeding.

In view of the above, we are of the opinion that the initiation of penalty proceeding u/s 271(1)(c) of the Act was not proper.

Accordingly, we answer question No. 1 in the affirmative and question No. 2 in the negative, both in favour of the assessee and against the Revenue.

A copy of this judgment under the signature of the Registrar and the seal of the High Court shall be transmitted to the Income Tax Appellate Tribunal.