TaxTMI 
TaxTMI 
2019 (1) TMI 1356
X X X X Extracts X X X X
X X X X Extracts X X X X
....rding to AO, the disallowance/additions are reasonable and he felt that it is a fit case of initiation of penalty u/s. 271(1)(c) of the Act and, thereafter, he imposed penalty of Rs. 8,50,367/- on the assessee for concealment of particulars of income. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who confirmed the action of AO. Aggrieved, assessee is before us. 4. We have heard rival submissions and gone through the facts and circumstances of the case. We note that at the outset itself, the Ld. AR drew our attention to the fact that this appeal is against the penalty levied by the AO which has been confirmed by the Ld. CIT(A). The main issue which the assessee raises is a legal issue wherein according to him, the AO while framing assessment order has not given clear direction for initiation of levy of penalty u/s. 271(1)(c) of the Act but simply has made an endorsement at the end of the assessment order that "penalty u/s. 271(1)(c) is initiated separately, "which is not sufficient to assume jurisdiction to invoke penalty u/s. 271(1)(c) of the Act. According to Ld. Counsel, even though section 271(1B) which has been inserted by the Parliament with retrospectiv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wn. Thereafter the Assessing Authority proceeded to pass assessment order disallowing the said claim ofRs.4,40,00,000-00. Thereafter it was observed in the end of the order that 'Penalty under u/s 271(1)(c) initiated separately'. 3. The assessee contested the said proceedings by contending that on the date of levy of penalty, the assessee ceased to exist inasmuch as the same was merged with the UB Holdings Ltd., vide Karnataka High Court order dated 31.08.2005. It was contended that the notice issued in proceedings is invalid. On merits, it was contended that the assessee had withdrawn the claim of diminution in value of investment with intention to buy peace. The assessee being an investment company, the diminution in value of investment was an allowable claim thereby establishing the bonafides of the assessee. They also pressed into service the Accounting Standard 13 issued by ICAI in support of their claim. The issue was debatable. However the Assessing Authority over-ruled the objections and imposed penalty. 4. The assessee preferred an appeal to the Commissioner of Income Tax (Appeals), which came to be dismissed. 5. It is against the said or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or Counsel appearing for the assessee contended that even though the deeming provision is attracted, satisfaction of the concealment is not to be found in the order of assessment, still only if the Assessing Authority is satisfied that it is a case of concealment, he has to pass a direction for initiation of proceedings. If that direction is not there in the order, the entire proceedings initiated is vitiated. Secondly he contended that diminution in value of the assets was claimed as a business loss. It was pointed out that in order to purchase peace and to avoid litigation, they have withdrawn the claim. Therefore there was no intent to conceal the said amount. Therefore, Section 271 of the Act is not attracted. 9. In the light of the aforesaid facts and rival contentions the substantial question of law which arises for consideration in this appeal is as under: "Whether the Tribunal was correct in holding that penalty under Section 271(1)(c) of the Act, cannot be levied as there was no concealment, no loss of revenue and subsequent withdrawal was with no ulterior motive ?" 10. Section 271(1)(c) of the Act, was the subject matter of interpretation by thi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eedings such order shall deem to constitute satisfaction of the Assessing Officer for initiation of penalty proceedings under sub-clause (c) of Section 271 of the Act. As the language of Section 271 makes it clear before a direction is issued to pay penalty, the person issuing the direction must be satisfied about the condition mentioned in clause (c) of Section 271(1). The question is, whether such satisfaction should be in writing. As the satisfaction has to be in the course of any proceedings and it is at the time of computation of the total income of any person and as it results in an assessment order which has to be mandatorily in writing, the satisfaction should be found in the said order. The existence of these facts is a condition precedent for initiation of penalty proceedings under Section 271. This provision is attracted once in any such assessment orders, a direction for initiation of penalty proceedings under clause (c) of sub- section (1) is made. Thereby, it means even if the order does not contain a specific finding that the assessee has concealed income or he is deemed to have concealed income because of the existence of facts which are set out in Explanation 1, if....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ses like (a) penalty proceedings are being initiated separately and (b) penalty proceedings under Section 271(1)(c) are initiated separately, do not comply with the meaning of the word direction as contemplated even in the amended provisions of law. The direction should be clear and without any ambiguity. The word 'direction' has been interpreted by the decision of the Apex Court in the case of RAJENDRANATH reported in 120 ITR pg.14, where it has been held that in any event whatever else it may amount to, on its very terms the observation that the ITO is free to take action, to assess the excess in the hand of the co-owners cannot be described as a direction. A direction by a statutory authority is in the nature of an order requiring positive compliance. When it is left to the option and discretion of the ITO whether or not take action, it cannot be described as a direction. 51. Therefore, it is settled law that in the absence of the existence of these conditions in the assessment order penalty proceedings could not be proceeded with. The proceedings which are initiated contrary to the said legal position are liable to be set aside." 11. In the in....