TaxTMI 
TaxTMI 
2006 (2) TMI 89
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....sion of income in the revised return of income?" The brief facts of the case are narrated as follows: The case of all the assessees under reference is, admittedly, identical and therefore, the case of M/s. Sajjanraj Nahar & Sons is stated as a benchmark. The assessee was carrying on business in financing and hire purchase of vehicles. A return was filed on July 28, 1987, declaring taxable income of Rs. 88,010 which was arrived at after deducting a sum of Rs. 61,200 in respect of the interest paid on loans obtained from different parties in the earlier assessment years. After completing the assessment under section 143(1) of the Act, the Assessing Officer reopened the case and issued a notice under section 143(2) of the Act, and in response to the said notice the assessee appeared with the books of account and submitted a revised return on January 18, 1988, declaring total income of Rs. 1,49,210 which was arrived at after showing a further sum of Rs. 61,200 to Rs. 88,010 originally declared. The Assessing Officer accepted the income returned in the revised return and completed the assessment in a sum of Rs. 1,49,210. In each of the assessment orders even dated March 9....
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.... 26, 1991, was appealed before the Tribunal by the Revenue. The Tribunal, by order dated September 25, 1997, set aside the order of the Commissioner of Income-tax (Appeals) disagreeing with the contention of the assessee that the filing of revised return voluntarily, without any detection of concealed income, exonerates the assessee from the penal consequences of section 271(1)(c) of the Act. The Tribunal, in detail discussed the facts and circumstances of the cases, the conduct of the assessee and came to the conclusion that: (i) the assessee did not act bona fide and honestly in returning the correct income originally; (ii) the filing of the revised return offering additional income by way of adding interest expenditure cannot be considered a bona fide act; and (iii) the Assessing Officer was fully justified in initiating and thereafter, levying penalty under section 271(1)(c) of the Act, after calling for explanation from the respective assessees, as the assessees failed to offer any convincing explanation. Hence, these references. Mr. J. Balachander, learned counsel for the applicants contends that the Tribunal erred in setting aside the well-considered orders of....
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.... upon by the assessee, namely (a) CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 (Delhi); and (b) Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi), are not applicable to the facts and circumstances of these cases, as they are not at all related to the revised returns. Inviting our attention to the ratio laid down by the apex court in CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739, learned senior standing counsel for the Revenue contends that the decision in (a) CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 (Delhi); and (b) Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi), do not hold good. It is also contended that the case of the assessee is squarely covered by the decisions of this court in (i) CIT v. J.K.A. Subramania Chettiar [1977] 110 ITR 602; and (ii) Ravi and Co. v. Asst. CIT [2004] 271 ITR 286. With regard to questions of law (ii) and (iii) under reference, it is contended that the said questions are purely related to the findings rendered by the Tribunal in its order dated September 25, 1997, viz., (i) the assessee did not act bona fide and honestly in returning the correct income originally; (ii) the filing of the revised return....
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....d by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bonafide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed. Explanation 2.- Where the source of any receipt, deposit, outgoing or investment in any assessment year is claimed by any person to be an amount which had been added in computing the income or deducted in computing the loss in the assessment of such person for any earlier assessment year or years but in respect of which no penalty under clause (iii) of this sub-section had been levied, that part of the amount so added or deducted in such earlier assessment year immediately preceding the year in which the receipt, deposit, outgoing or investment appears (such earlier assessment year hereafter in....
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....able on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income; (b) in any case to which Explanation 3 applies, means the tax on the total income assessed; (c) in any other case, means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished. Explanation 5.- Where in the course of a search under section 132, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income,- (a) for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein; or (b) for any previous year which is to end....
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....section, in good faith and with due diligence. (1A) Where any penalty is imposable by virtue of Explanation 2 to sub-section (1), proceedings for the imposition of such penalty may be initiated notwithstanding that any proceedings under this Act in the course of which such penalty proceedings could have been initiated under sub-section (1) have been completed. (2) When the person liable to penalty is a registered firm or an unregistered firm which has been assessed under clause (b) of section 183 then, notwithstanding anything contained in the other provisions of this Act, the penalty imposable under sub-section (1) shall be the same amount as would be imposable on that firm if that firm were an unregistered firm .... (4) If the Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that the profits of a registered firm have been distributed otherwise than in accordance with the shares of the partners as shown in the instrument of partnership on the basis of which the firm has been registered under this Act, and that any partner has thereby returned his income below its real amount, he may direct that such partner shal....
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....hose total income is less three thousand five hundred rupees unless he has been served with a notice under sub-section (2) of section 22; (b) where a person has failed to comply with a notice under subsection (2) of section 22 or section 34 and proves that he has no income liable to tax, the penalty imposable under this sub-section shall be a penalty not exceeding twenty-five rupees; (c) no penalty shall be imposed under this sub-section upon any person assessable under section 42 as the agent of a person not resident in the taxable territories for failure to furnish the return required under section 22 unless a notice under sub-section (2) of that section or under section 34 has been served on him; (d) when the person liable to penalty is a registered firm or an unregistered firm which has been assessed under clause (b) of subsection (5) of section 23, then, notwithstanding anything contained in the other provisions of this Act, the amount of income-tax and super-tax payable by the firm itself shall be taken to be an amount equal to the tax which would have been payable by an unregistered firm on an income equal to the firm's total income, and, in the cases referred to in....
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....n Enterprises v. CIT [2000] 246 ITR 571. The apex court in CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739, held as follows: "The power to impose penalty under section 28 depends upon the satisfaction of the Income-tax Officer in the course of proceedings under the Act; it cannot be exercised if he is not satisfied about the existence of conditions specified in clauses (a), (b) or (c) before the proceedings are concluded. The proceeding to levy penalty has, however, not to be commenced by the Income-tax Officer before the completion of the assessment proceedings by the Income-tax Officer. Satisfaction before conclusion of the proceeding under the Act, and not the issue of a notice or initiation of any step for imposing penalty is a condition for the exercise of the jurisdiction." By placing reliance on the said decision in CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739 (SC), the Delhi High Court in Diwan Enterprises v. CIT [2000] 246 ITR 571, held that satisfaction has to be before the issue of notice or initiation of any step for imposing penalty and such requisite satisfaction has to be recorded in the proceedings or otherwise, the penalty proceedings initiated would suffer....
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.... (a) The Full Bench of this court in A. Rm. A.L.A. Arunachalam Chettyar v. CIT [1931] 6 ITC 58 held as under: "It is argued here that the assessee discovered on January 7, 1929, that his previous return was an inaccurate one and that he was, therefore, entitled to claim the benefit of section 22(3) and make a revised return and as that has been accepted no penalty can be inflicted upon him for having concealed his income. That certainly is the correct statement of what an assessee is entitled to do, if he makes a bona fide discovery that he has made a previous incorrect return but it certainly does not apply to the facts of this case which show clearly that the previous return was deliberately dishonestly made. It is seriously argued that, notwithstanding that fact, the assessee is still enabled to put in a return correcting his former inaccurate one and that he is to be absolved from liability to have any penalty inflicted upon him. That, it seems to me, is to put a premium on dishonesty and nowhere in the Income-tax Act do we find any provision which does anything of the kind. The contention that this was a discovery within the meaning of section 22(3) is of course futile. ....
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....purposes and no penalty can be imposed in respect of any concealment in the earlier return. Now, it is perfectly true that every assessee has the right under section 22, sub-section (3), to submit a revised return if he discovers any omission or wrong statement in his original return before the assessment is made. But the omission or wrong statement may be accidental or deliberate. Where it is accidental, no result may ensue by reason of the omission; but where the omission is deliberate, the results of such deliberate omission cannot be got rid of merely by filing a revised return." (e) Again the Madras High Court in Sivagaminatha Moopanar and Sons v. CIT [1964] 52 ITR 591, following the decision of the Full Bench of this court in A. Km. A. L. A. Arunachalam Chettyar v. CIT [1931] 6 ITC 58, and referring to the decision in Ayyasami Nadar and Bros. v. CIT [1956] 30 ITR 565 held as follows: "If an assessee therefore makes a false return knowing it to be false, the fact that he subsequently discloses the true particulars of income cannot prevent the application of the section which is intended to punish fraud or contumacy on the part of the assessee. Indeed in such a case it wo....
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....ter examining the return and accounts in the proceedings the discovery of the omission or wrong statement is made by the departmental authority and thereafter the revised return purported to be under sub-section (5) is filed, that will not be considered as a revised return under sub-section (5). As a proposition of law it may be correct that if a revised return as contemplated under sub-section (5) is submitted before the assessment is made after the assessee having discovered some omission or some wrong statement in the original return and in the revised return he makes correction of the omission or the wrong statement, a penalty proceeding for concealment of the particulars of income or furnishing inaccurate particulars of such income as contemplated under clause (c) of sub-section (1) of section 271 may not be attracted. But, to avoid the penalty proceeding as contemplated under section 271(1)(c) by reason of submission of revised return, the revised return itself must be within the correct ambit and scope of sub-section (5) of section 139 of the Act. If it cannot be said that a revised return in fact does come within the correct ambit and scope of section 139(5), then immunity ....
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....n the original return already filed by him.' and held as under: 'as the assessee had intentionally and deliberately concealed the particulars of his income in the first return as well as in the second return, he cannot escape the liability to penalty under section 271(1)(c). Section 139(5) applies only to a limited category of cases where in the original return there was any omission or any wrong statement and not to cases of concealment or false statements. If a case does not fall under section 139(5), the fact that the revised return was filed before any investigation was started by the income-tax department will be of no consequence. The fact that the assessee furnished the particulars before any detection was made by the department or not will be relevant only when the Commissioner is considering the question whether the minimum penalty imposable under section 271(1) should be waived or reduced, on an application made by the assessee under section 271 (4A), but they are foreign to the scope of section 271(1)(c). The Tribunal was, therefore, in error in holding that there had been no concealment of particulars of income in the present case'." It is true, the ap....
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.... ITR 568 (Delhi), it was held as follows: "A bare reading of the provisions of section 271 and the law laid down by the Supreme Court makes it clear that it is the assessing authority which has to form its own opinion and record its satisfaction before initiating the penalty proceedings. Merely because the penalty proceedings have been initiated, it cannot be assumed that such a satisfaction was arrived at in the absence of the same being spelt out by the order of the assessing authority. Even at the risk of repetition we would like to state that the assessment order does not record the satisfaction as warranted by section 271 for initiating the penalty proceedings." Similarly, in Diwan Enterprises v. CIT [2000] 246 ITR 571, it was held as under: "Satisfaction has to be before the issue of notice or initiation of any step for imposing penalty. In the case at hand we find the Assessing Officer having nowhere recorded till the conclusion of the assessment proceedings his satisfaction that the assessee had concealed the particulars of his income or furnished inaccurate particulars of such income. This is a jurisdictional defect which cannot be cured. The initiation of the pen....
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....matters mentioned in the clauses of that sub-section. It is not, however, essential that notice to the person proceeded against should have also been issued during the course of the assessment proceedings. Satisfaction in the very nature of things precedes the issue of notice and it would not be correct to equate the satisfaction of the Income-tax Officer or Appellate Assistant Commissioner with the actual issue of notice. The issue of notice is a consequence of the satisfaction of the Income-tax Officer or the Appellate Assistant Commissioner and it would, in our opinion, be sufficient compliance with the provisions of the statute if the Income-tax Officer or the Appellate Assistant Commissioner is satisfied about the matters referred to in clauses (a) to (c) of sub-section (1) of section 271 during the course of proceedings under the Act even though notice to the person proceeded against in pursuance of that satisfaction is issued subsequently." Then again, if the view expressed by the apex court in CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739, viz.,: "There is no evidence on the record that the Income-tax Officer was not satisfied in the course of the assessment proceeding t....
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.... Act. The Assessing Officer, therefore, has rightly reached the satisfaction that the assessee had concealed income in the original return by way of indicating his satisfaction that the penalty proceedings are proposed to be initiated. In any event, it is a settled law that once the authorities have arrived at a subjective satisfaction under the facts and circumstances of the case, it may not be proper for this court to enter into the merits of the controversy at all in the proceedings under reference, as the Tribunal had rendered a clear finding that, (i) the assessee did not act bona fide and honestly in returning the correct income originally; (ii) the filing of the revised return offering additional income by way of adding interest expenditure cannot be considered a bona fide act; and (iii) the Assessing Officer was fully justified in initiating and thereafter, levying penalty under section 271(1)(c) of the Act, after calling for explanation from the respective assessees, as the assessees failed to offer any convincing explanation, and unless it is demonstrated that such indication made by the Assessing Officer to initiate penalty proceedings is mala fide, perver....