TaxTMI 
TaxTMI 
2009 (7) TMI 38
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....essees are concerned, in as much as, apropos to its insertion in the Act, the salutary requirement of the Assessing Officer arriving at his own 'satisfaction' during the course of assessment proceedings that the assessee has concealed the particulars of his income or has furnished inaccurate particulars before initiating penalty proceedings has been done away, by a deeming fiction encapsulated therein. This, in short, is the kernel of the controversy before us. As is evident on a bare reading of the provisions of Section 271(1B) of the Act that the deeming fiction envisaged in the said provision which is to operate retrospectively, pertains only to clause (c) of sub-section (1) of Section 271 of the Act. 1.1 Consequently, the writ petitioners before us have made the following main prayers in their respective writ petitions: Writ petition No. 5059/2008 i) That the impugned sub-section (1B) of Section 271 of the Act may be struck down as constitutionally invalid; or alternatively, it may be read down to the effect that the satisfaction should be deemed to have been recorded only where reasons are specified with respect to specific items of additions or disallowances leading to ....
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....0/-. Importantly, by the very same order, the Assessing Officer initiated penalty proceedings under Section 271(1)(c) of the Act by making the following endorsement at the foot of the order: "Initiate penalty proceeding u/s 271(1)(c) of the I.T. Act separately. Issue necessary forms." 2.3 By an order dated 31.08.2004 the Assessing Officer after considering the reply filed by the petitioner imposed a penalty of Rs 18,79,303/- at the minimum rate of 100% of tax evaded. Being aggrieved, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)']. The CIT(A) vide order dated 04.03.2005 sustained the penalty imposed by the Assessing Officer. Aggrieved, the assessee carried the matter further in appeal to the Tribunal. The Tribunal by an order dated 15.07.2005 deleted the penalty imposed on the petitioner. In doing so it posed to itself the following two issues: (i) Whether penalty under Section 271(1)(c) of the Act could be imposed on the assessee if the taxable income was nil? (ii) Whether penalty under Section 271(1)(c) of the Act could be imposed in the event the satisfaction arrived at by the Assessing Officer before in....
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....e fact that the petitioner was a tax resident of United Kingdom and the profits earned from the said activities were taxable only in United Kingdom. 3.4 The stand taken by the petitioner was not accepted by the Department with respect to engineering and ground-handling services. Consequently, a notice dated 09.06.1998 was issued by the Assessing officer calling for information with regard to the engineering and ground-handling services, in respect of assessment years 1996-97, 1997-98 and 1998-99. Pursuant thereto, the petitioner filed returns for the aforementioned assessment years on 30.11.1998, offering to tax 15% deemed profit' from engineering and ground-handling services. 3.5 The Assessing Officer in March, 1999, completed the assessment of the petitioner. By his assessment order, the Assessing Officer while rejecting the stance of the petitioner that engineering and ground-handling services were not amenable to tax in India by virtue of Article 8(2) of the DTAA, brought to tax petitioner's income in excess of 80% of gross receipts, from engineering and ground-handling services. By the same assessment order the Assessing Officer also initiated penalty proceedings against t....
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....uired to form his own opinion and record his satisfaction before initiating penalty proceedings. The Tribunal observed that merely because penalty proceedings have been initiated it cannot be assumed that such satisfaction has been arrived at, in the absence of the same being spelt out, in the order of the Assessing Officer. In order to ascertain whether requisite satisfaction had been arrived at by the Assessing officer the Tribunal was called upon to decide which of the two assessment orders had to be looked at, that is, one which was passed originally or the one which was passed on remand. The Tribunal after due discussion of the case law on the issue, came to the conclusion that since in the present case it had in the first round by its order dated 30.10.2006 sustained the original assessment on principle by agreeing with the Assessing Officer that the income received by the assessee by way of engineering and ground handling services was taxable, and had thus set aside the said assessment order partially only for re-computation of income from the said activities; for the purpose of ascertaining satisfaction of the Assessing Officer with regard to initiation of penalty proceedin....
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....of Shri Prithvi Cotton Mills Ltd vs. Broach Borough Municipality (1989) 2 SCC 283 was read and sought to be distinguished. It was contended that in the instant case there is no statute or rule which has been declared invalid so as to impinge on the very power to levy tax or penalty. It is submitted that the present case is not one where power to levy penalty is wanting, but is a case where a jurisdictional error has been committed in invoking the power to impose penalty while the power by itself remains undisturbed under the provisions of Section 271(1)(c) of the Act. In short it is submitted that there is no challenge to the validity of Section 271 of the Act except to a limited extent in so far as it pertains to sub-section (1B) of Section 271 of the Act. It is thus submitted that the ratio of Shri Prithvi Cotton Mills Ltd (supra) would not be applicable as there is no challenge to the competence of the legislature to levy penalty or to the provision under which the penalty is levied. (iii) The well settled principle established by the Courts which includes the Supreme Court and the various High Courts is that, before initiation of penalty proceedings, the Assessing Officer has....
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....ich of the assessee's case ought to be picked up for initiation of penalty proceedings it would lead to unnecessary harassment and protracted litigation, besides the one who is picked up for initiation of penalty proceedings will be meted with unequal treatment in law. (v)(c) The learned counsel went on to illustrate the arbitrariness by citing another example: He submitted that say in a given case during the course of assessment proceedings, an Assessing Officer makes five or six additions and disallowances, but prima facie satisfaction is not found to exist in respect of all such additions or disallowances save and except in the case of one or two of such additions or disallowances. The Assessing Officer by taking recourse to the impugned provision would issue notice and initiate penalty proceedings with respect to all additions and disallowances. To drive home the point the learned counsel referred to facts of the instant case. He states that the Assessing officer during the course of assessment has made an addition of a sum of Rs 3,82,656/- on account of undisclosed income and a disallowance under Section 80HHC by restricting deduction to the extent of Rs 50,43,499/- as again....
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....on, the Revenue would accept that satisfaction is required to be arrived at by the Assessing Officer during the course of any such proceedings. Being a quasi-judicial function the satisfaction should be reasoned. Reliance was placed on S.N. Mukherjee vs Union of IndiaAIR 1990 SC 1984 at 1994 (para 31) and at 1997 (para 39). The learned counsel further submitted that while he does not question the power of legislature to enact law retrospectively; the retrospective amendment is not only oppressive but also fails to supply any rationale for its applicability from 1.4.1989. In this context he relies on the judgment of the Supreme Court in Virender Singh Hooda vs. State of Haryana (2004) 12 SCC 588 at 605 para 33 & 34, Empire Industries Ltd vs. UOI (1985) 3 SCC 314 and lastly, Tata Motors Ltd vs State of Maharashtra & Ors (2004) 5 SCC 783 at 788-790, paragraphs 12 and 15. The learned counsel further contended that penalty proceedings being penal in nature, the principle of greater latitude in economic matters cannot apply to such like provisions. He also contends that while constitutionality of a provision is presumed and the onus is on the party which challenges its constitutionality;....
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....mpugned amendment was unsustainable. He submitted that the writ courts were fully competent to exercise their extra-ordinary jurisdiction vested in them in a case where the Assessing Officer acts arbitrarily irrespective of the stage of the proceedings. A mere apprehension of bias or abuse of power would not be a good ground to strike down the impugned provision. He contended that in case the Assessing Officer was asked to record his complete satisfaction as against prima facie satisfaction then the penalty proceedings which are independent of assessment proceedings would become meaningless. (iv) On the issue of retrospectivity, the learned ASG contended that the amendment was merely procedural and did not deal with substantive rights, as in, the penalty had not been created for the first time. He contended that the impugned amendment will not disturb those cases which had attained finality but will affect only those, where penalty proceedings have been initiated or are pending adjudication before a judicial forum. The learned ASG sought to explain the basis for the retrospective amendment in the following manner: The Direct Tax Laws (Amendment) Act, 1987 was enacted, whereby Sec....
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....hat such person shall pay by way of penalty, in the case referred to in clause (a), in addition to the amount of the income-tax and super-tax, if any, payable by him, a sum not exceeding one and a half times that amount, and in the cases referred to in clauses (b) and (c), in addition to any tax payable by him, a sum not exceeding one and a half times the amount of the income-tax and super tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income:" 7.2. With the enactment of Income Tax Act, 1961, i.e., the Act, Section 271 was brought on to the statute book. At the relevant time, Section 271 comprised of only sub-section (1), (2), (3) and (4). Section 271(1)(c) at that point in time to the extent it is relevant read as follows:- 271. Failure to furnish returns, comply with notices, concealment of income, etc. - (1) If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied any person - (a) has without reasonable cause failed to furnish the return of his total income which he was required to furnish under sub-section (1) of section 139 or by not....
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....ference in the returned income and the assessed income was due to a bonafide mistake. 7.4 Thereafter, there were amendments made in 1971, 1974, 1975, 1977 and 1984. We are not referring to the same as they are not presently very material to the issue under consideration. It would, however, be perhaps of some relevance to only note that by way of the Taxation Laws (Amendment in Misc. Provisions) Act, 1986 w.e.f. 10.09.1986 the following amendment in sub-section (1) were made. - (i) In clause (a) as it was then, and clause (b), the words 'without reasonable cause', were omitted. (ii) In clause (B) of Explanation I the words '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' were inserted. (iii) The proviso to Explanation I, as originally enacted, was omitted. (iv) In explanation 5, the word 'unless, -" followed by clauses (1) and (2) as at present were substituted for the earlier words." 7.5 It is important to note that the expression without reasonable cause' was also omitted with respect to other provisions under which penalty was leviable under Cha....
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....ax Laws (Amendment) Act, 1987. 7.9 Thereafter, amendments were also made in 1998, 2001, 2007 and the present amendment in 2008. Once again amendments in 1998 to 2007 not being material for our purposes the same are not touched upon by us. 8. What is, however, clear to us by virtue of a brief review of the legislative history of Section 271 is that the provision of clause (c) which deals with imposition of penalty for concealment of particulars of income or furnishing of inaccurate particulars of income by the assessee, has remained untouched since the 1922 Act was enacted, (at which point in time, it appeared on the statute book as Section 28(1)(c)) except for a brief interval in 1987 when the Direct Tax Laws (Amendment) Act, 1987 was passed. As noticed above, the same was not brought into force and the original position was reverted to, with the enactment of the Direct Tax (Amendment) Act, 1989. The gap, if any, in the interregnum was sought to be filled up by insertion of sub-section (5) in Section 271 of the Act which reads as follows: "(5) the provisions of this section as they stood immediately before their amendment by the Direct Tax laws (Amendment) Act, 1989 shall apply....
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....ion of the Parliament, the court is required to come to its own view based on the language of the Statute and the not be governed by affidavits filed in court by parties to 'justify and sustain the legislation'. (See UOI vs Elphinstone Spinning and Weaving Co Ltd & Ors. JT 2001 (1) SC 536 at page 552, paragraph 9) SCHEME OF CHAPTER - XXI 9. This brings us to the scheme of the penalty provisions. Penalty provisions find mention in Chapter XXI of the Act, while the provisions for prosecution are contained in Chapter XXII. For the purposes of the issues raised in the instant case we will limit our discussion only to Sections 271, 271(1B), and 274 of the Act. For the sake of convenience it would be relevant to cull out the relevant parts of Section 271(1), Section 271(1B) and Section 274. 271 (1) If the [Assessing Officer] or the [Commissioner (Appeals)] [or the Commissioner] in the course of any proceedings under this Act is satisfied that any person¡ª (a) xxxxx (b) xxxxx (c) has concealed the particulars of his income or furnished inaccurate particulars of [such income, or] (d) xxxxx he may direct that such person shall pay by way of penalty¡ª (i) xxxx (ii) xx....
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....The order imposing penalty can be passed only after assessment proceedings are completed. The time frame for passing the order is contained in Section 275 of the Act. 11. It is important to note that these provisions of Section 271(1)(c) remain insulated from the amendment brought about by the Finance Act, 2008 whereby the impugned provision, that is, Section 271(1B) was inserted. 11.1 The reasons for bringing about the amendment is contained both in the Memorandum and in Clause 48 of Notes on Clauses. Being relevant they are extracted hereinbelow:- Notes on Clauses to the Finance Bill, 2008 Clause 48 seeks to amend Section 271 of the Income Tax Act, which relates to failure to furnish returns, comply with notices, concealment of income, etc. Under the existing provisions contained in Chapter XXI the Assessing Officer is required to be satisfied during the course of penalty proceedings. Legislative intent was that such a satisfaction was required to be recorded only at the time of levy of penalty and not at the time of initiation of penalty. However, some of the judicial interpretations on this issue are favouring the view that satisfaction has to be recorded at the time o....
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....idi Chettiar (supra). Therefore, it is relevant at this stage to examine briefly facts of the said cases and the observation made by the Supreme Court therein. 13. S.V. Angidi Chettiar (supra) is a case where essentially the issue for consideration which arose before the Supreme Court was whether penalty proceedings against a registered firm could continue under the provisions of the 1922 Act even after the firm's dissolution. The Supreme Court while answering the question in the affirmative, also dealt with the submission of the learned counsel for the assessee that the Assessing Officer having not arrived at a satisfaction during the course of the proceedings about existence of conditions contained in clause (a) & (c) of Section 28(1) of the 1922 Act, no penalty could be levied. This ground was repelled by the Supreme Court with following observations: Counsel contended that in any event, penalty for the assessment year 1949-50 could not be imposed upon the assessee firm because there was no evidence that the Income-tax Officer was satisfied in the course of any assessment proceedings under the Income-tax Act that the firm had concealed the particulars of its income or had de....
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....to hold that the assessee had deliberately concealed particulars of his income or deliberately furnished inaccurate particulars of his income. While answering the question against the assessee the Supreme Court made the following crucial observations:- According to Clause (c) of Sub-section (1) of Section 271 of the Act, if the Income Tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under the Act is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay in addition to the amount of tax, by way of penalty a sum calculated in accordance with Clause (iii) of that sub-section¡­.. ¡­..Clause (c) of Sub-section (1) of Section 271 shows that occasion for taking proceedings for payment of penalty arises if the Income Tax Officer or the Appellate Assistant Commissioner is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. It has also to be shown that the Income Tax Officer or the Appellate Assistant Commissioner was so satisfied in the course of proceedings und....
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....egarding the concealment of income which would constitute the basis and foundation of the proceedings for levy of penalty¡­.. ¡­¡­It may also be observed that what is contemplated by Sections 271 and 274 of the Act is that there should be, prima facie, satisfaction of the Income Tax Officer or the Appellate Assistant Commissioner in respect of the matters mentioned in Sub-section (1) before he hears the assessee or gives him an opportunity of being heard. The final conclusion on the point as to whether the requirements of clauses (a), (b) and (c) of Section 271(1) have been satisfied would be reached only after the assessee has been heard or has been given a reasonable opportunity of being heard. (Emphasis is ours) The argument that there was no material or evidence before the Tribunal to hold that the assessee had deliberately concealed the particulars of his income or had deliberately furnished in-accurate particulars of such income is equally bereft of force. The Tribunal while dealing with this aspect of the matter referred to its earlier observations in the appeal relating to the refusal of the Income Tax authorities to register Kohinoor Mills as a firm¡....
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....itted an act of omission or commission which would bring him within the ambit of the provisions of clause (c) of sub-section (1) of Section 271. The notice under Section 274 was to follow. What was important was that satisfaction' had to be arrived at during the course of assessment proceedings and not issuance of notice under Section 274 of the Act. (See D.M. Manasvi (supra) and S.V. Angidi Chettiar (supra) 13.3 Having noted the ratio of the judgment of the Supreme Court in D.M. Manasvi and S.V. Angidi Chettiar (supra), it would also perhaps be relevant to briefly examine the facts obtaining in Ram Commercial (supra) as the Department is most aggrieved by the observations contained therein which have been subsequently followed by other Division Benches of this Court and is the reason for the impugned amendment. The facts as recorded in Ram Commercial (supra) are briefly as follows:- 13.4 The assessee had filed a return for assessment year 1986-87 declaring an income of Rs 15,700/-. There was a survey conducted on the assessee pursuant to which it was found that assessee had earned additional income. The assessee filed a revised return surrendering an income of Rs 5,50,000 over ....
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....the Division Bench. It would be evident from the observations extracted hereinafter that the Division Bench concluded by observing that merely because penalty proceedings have been initiated, it cannot be assumed that such satisfaction was arrived at in the absence of the same being spelt out' by the order of the Assessing authority. The Court went on to hold that the assessment order does not record the satisfaction as warranted by Section 271 for initiating penalty proceedings. The relevant extract of the judgment is as follows:- "Learned senior standing counsel for the Revenue, on the other hand, submitted that all the facts available on record and as pointed out by him coupled with the fact that by the assessment order itself the assessing authority has chosen to initiate proceedings under section 271(1)(c) of the Act leads to an inference that the requisite satisfaction was arrived at by the assessing authority. Therefore, the initiation of penalty proceedings cannot be found fault with and hence a question of law does arise. Having heard learned counsel for the parties and having given our anxious consideration to the material available on the record, in the light of the l....
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....pening clause of sub-section (1) of section 271 itself contemplates a finding as regards satisfaction of availability of grounds under clause (c) being recorded during the assessment proceedings. Recently, in CIT vs Ram Commercial Enterprises Ltd. (I.T.C No. 13 of 1996 decided on October 8,1998-since reported in (2000) 246 ITR 568 (Delhi), following the law laid down by their Lordships of the Supreme Court in D.M.Manasvi v. CIT (1972) 86 ITR 557 and CIT v. S.V.Angidi Chettiar (1962) 44 ITR 739 (SC), we have held that unless requisite satisfaction was recorded in the proceedings under the Act, which would mean the assessment proceedings, the jurisdiction to initiate the penalty proceedings could not have been exercised. 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 penalty proceedings was itself bad and, c....
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....sfaction and the satisfaction is not to be in the mind of the Assessing Officer but must be reflected from the record. It is a settled rule of law that the authorities performing quasi-judicial or judicial function must give reasons in support of its order so as to provide in the order itself the ground which weighed with the authorities concerned for passing an order adverse to the interest of the assessee. Furthermore the provisions of section 271(1)(c) are penal in nature thus must be strictly construed, the element of satisfaction should be apparent from the order itself. It is not for the courts to go into the mind of the authorities or trace the reasons from the files of such authorities." 13.10 As is evident, the observations of the Court make it clear that the satisfaction which the Assessing Officer has reached, must be reflected and/or apparent from the order itself. It is in this context the Division Bench perhaps observed that it is not for the Courts to go into the mind or trace reasons from files of such authorities. A reading of the observations of various Division Benches of this court would show that the Court did not suggest that at the stage of initiation of pen....
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....ourt based on the facts obtaining in the said case, came to the conclusion that it would not only be unjust and unfair but also contrary to the scheme of the Act that the Revenue was permitted to use initiation, continuation of penalty proceedings and imposition thereof as a threat to an assessee for recovery of tax due from the concerned assessee. The Division Bench observed that the Assessing Officer had not recorded his satisfaction before initiation of penalty proceedings, and that, in the said case, it was used as a coercive measure to recover Revenue rather than being founded on a satisfaction in regard to the fact that the assessee had concealed particular of his income or furnished inaccurate particulars of its income. 13.12 There is one another case decided by a Division Bench of this Court entitled CIT vs Rajan & Co : (2007) 291 ITR 340 to which a reference requires to be made. In this case the matter travelled by way of an appeal to this Court against the order of the Tribunal. The Tribunal in the said case had dismissed the appeal of the Revenue on the ground that the Assessing Officer had made an addition with respect to two items while in the assessment order satisf....
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.... there is no merit in the argument of learned counsel. A reading of the order passed by the Tribunal shows that after making a reference to the judgments of the Supreme Court and some High Courts in Jain Brothers v. Union of India (1970) 77 ITR 107(SC), D.M. Manasvi v. CIT (1972) 86 ITR 557 (SC), CIT v. Ram Commercial Enterprises Ltd. (2000) 246 ITR 568(Del) and Diwan Enterprises v. CIT (2000) 246 ITR 571(Del), the Tribunal culled out the proposition of law in the following words : "It is clear from above that jurisdiction to impose penalty flows from recording of the satisfaction and in case there is a jurisdictional defect in the assumption of jurisdiction, it cannot be cured. With the aforesaid legal quoting, we are to examine the question whether the Assessing Officer assumed proper jurisdiction. It is again to be noted that from the issue of notice under Section 271(1)(c), the recording of legal and valid satisfaction cannot be assumed." The Tribunal then referred to the order of assessment passed by the Assessing Officer and observed : "It is clear from the above that not a word has been written about concealment of income. The Assessing Officer quietly accepted the revise....
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....(1)(c) of the Act. Based on these circumstances obtaining in the said case, the Division Bench of the Calcutta High Court while reiterating the principle that the Income Tax Officer should be prima facie satisfied before penalty notice is issued that the assessee infracted the provision of Section 271(1)(c) of the Act; observed that the Assessing Officer need not record such satisfaction in writing in every case. The court went on to hold whether the Income Tax Officer was so satisfied before he issued a penalty notice Section 271(1) depended on the facts and circumstances of each case. As a matter of fact the court returned a finding that the notice was issued by the Income Tax Officer during the course of proceedings and, also that, relevant material was before him at the point in time when he issued notice. The court observed on perusal of the assessment order that there was sufficient evidence to show that the Income Tax Officer was prima facie satisfied before he issued a penalty notice. 14.2 In the case of Shyam Biri Works (supra) the court was concerned with the imposition of penalty under Section 273(2)(a) of the Act for allegedly furnishing false estimate of advance tax.....
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....gh Court are concerned, we find that under the provisions of the Act, the Income-tax Officer is not required to record his satisfaction in a particular manner or reduce it in writing. It can be gathered from the assessment order itself. In D.M.Manasvi (1972) 86 ITR 557, the apex court has clearly held that the Income-tax Officer should be satisfied during the course of the assessment proceedings that the assessee had concealed his particulars of income or has furnished inaccurate particulars of such income. The satisfaction can be gathered from the assessment order. In the present case, we find that the Income-tax Officer had material before him for being satisfied that the applicant has concealed the particulars of his income and, therefore, penalty proceedings have rightly been initiated. We are, therefore, with great respect unable to persuade ourselves to follow the view taken by the Delhi High Court in the aforesaid two cases." 14.5 A more extreme view was taken by the Division Bench of the Madras High Court in the case of M Sajjanraj Nahar vs CIT (2006) 283 ITR 230. The brief facts of this case were that: an assessee had filed a return declaring his total taxable income in t....
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....essee had concealed income in the original return by way of indicating his satisfaction that the penalty proceedings are proposed to be initiated¡­." 15. As indicated above, Ram Commercial (supra) was referred to a Full Bench of this High Court. The Full Bench dealt with cases to which law obtaining prior to 01.04.1989 was applicable. The question of law that the Full Bench was called upon to consider was as follows: "whether satisfaction of the officer initiating proceedings under Section 271 of the Income-tax Act can be said to be recorded even in cases where satisfaction is not recorded in specific terms but is otherwise discernoble from the order passed by the authority." 15.1 The Full Bench after considering judgments of the Supreme Court in the case of D.M. Manasvi (supra), S.V. Angidi Chettiar (supra), Ram Commercial (supra), Diwan Enterprises (supra) and the Bombay High Court judgment in the case of CIT vs Dajibhai (1991) 189 ITR 141 came to the following conclusion. In our opinion, the legal position is well settled in view of the Supreme Court decisions in CIT vs S.V. Angidi Chettiar (1962) 44 ITR 739 and D.M. Manasvi vs CIT (1972) 86 ITR 557, that power to impo....
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....s we do not see how it can be argued by the Revenue that prior to the impugned amendment satisfaction at both at the initiation stage as also at the stage of imposition was required, however, with the enactment of the impugned provision, that is, sought to be changed by providing for satisfaction only at the stage of imposition of penalty. 15.5 In our opinion the impugned provision only provides that an order initiating penalty cannot be declared bad in law only because it states that penalty proceedings are initiated, if otherwise it is discernible from the record, that the Assessing Officer has arrived at prima facie satisfaction for initiation penalty proceedings. The issue is of discernibility of the satisfaction' arrived at by the Assessing Officer during the course of proceeding before him. 15.6 As indicated hereinabove, the position is no different post-amendment. The contra-submission of the learned ASG that prima facie satisfaction of the Assessing Officer need not be reflected at the stage of initiation but only at the stage of imposition of penalty is in the teeth of Section 271(1)(c) of the Act. Section 271(1)(c) has to be read in consonance of Section 271(1B). The ....
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....at the stage of initiation of penalty proceedings. The burden of proof on account of explanation 1 to Section 271 has shifted on to the assessee. To that extent we do not accept the submission of the learned counsel for the assessee that the impugned provision gives arbitrary power to the assessing Officer to pick and chose assessees' against whom penalty proceedings may be initiated even though similar additions and disallowances are made or that even though there are five or six items of additions and disallowances and infraction of clause (c) of Section 271(1) is vis-¨¤-vis only one or two such items of income or deduction, notice for initiation under the impugned provision will issue in respect of all. To our minds purported hardship cannot be a ground for striking down the impugned provision. 16. In our view the submission of the Revenue that the impugned provision deals with procedural aspect of the matter and hence cannot be challenged on the ground of retrospectivity is a surplusage. Suffice it to say that the legislature had plenary powers to enact a law both prospectively and retrospectively subject to certain constitutional limitations, as long its competency to do s....
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.... under an ineffective or an invalid law, the cause for ineffectiveness or invalidity must be removed before validation can be said to take place effectively. The most important condition, of course, is that the Legislature must possess the power to impose the tax, for, if it does not, the action must ever remain ineffective and illegal. Granted legislative competence, it is not sufficient to declare merely that the decision of the Court shall not bind for that is tantamount to reversing the decision in exercise of judicial power which the Legislature does not possess or exercise. A court's decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances. Ordinarily, a court holds a tax to be invalidly imposed because the power to tax is wanting or the statute or the rules or both are invalid or do not sufficiently create the jurisdiction. Validation of a tax so declared illegal may be done only if the grounds of illegality or invalidity are capable of being removed and are in fact removed and the tax thus made legal. Sometimes this is done by providing for jurisdiction where ju....
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.... (supra). To the same effect is the judgment of the Allahabad High Court in the case of Saeed Ahmed vs Inspecting ACIT (1971) 79 ITR 28. 17.4 The learned ASG has also relied upon the judgment of the Supreme Court in the case of Gold Coin Health Food P. Ltd (supra) which, according to us, does not deal with the issue at hand. The said judgment dealt with Explanation 4(a) to Section 271 of the Act. The Supreme Court by that judgment reversed the view taken by it in Virtual Soft Systems Ltd (supra), by holding that penalty could be levied even in a case where an assessee files a loss return. The Supreme Court went on to hold that the amendment is clarificatory in nature and hence will apply retrospectively. In the instant case the legislature has expressly given retrospective effect to the impugned provision. The limits of its retrospectivity have been earmarked. Furthermore, as submitted by the learned ASG the impugned provision will not apply to assessments which have already attained finality and are not pending adjudication before any judicial forum. 17.5 The learned ASG also relied upon a judgment of the Supreme Court in the case of Pannalal Binjraj vs UOI (1957) 31 ITR 565 a....
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....ing with the scope and effect of the various explanations to Section 271(1)(c) of the Act. The Court came to the conclusion that the principle of strict liability would apply to the assessee in respect of concealment or furnishing inaccurate particulars while filing his return. The Court went on to hold that penalty under the said provision was a civil liability and hence wilful concealment is not essential ingredient for attracting civil liability as in the case of matters of prosecution under Section 276C of the Act. The ratio of the judgment has in our opinion no applicability to the facts of the present case. 18. Mr Syali appearing on behalf of one of the petitioners has placed reliance on the judgment of the Supreme Court in Virender Singh Hooda & Ors. Vs State of Haryana & Anr. (2004) 12 SCC 588. Briefly, this case dealt with the validity of the Haryana Civil Services (Executive Branch) and Allied Services and Other Services, Common/ Combined Examination Act, 2002. This Act came into force with retrospective effect i.e. 29.08.1989. The Act sought to repeal essentially the right to seek employment based on his or her position in merit list and/or in the Common/Combined exami....
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....sion with retrospective operation has been reasonably exercised or not, it becomes relevant to enquire as to how the retrospective effect of the amendment operates." 18.1 The judgment of the Supreme Court in Empire Industries Ltd vs UOI 1985 (3) SCC 314 refers to the same principle. As a matter of fact in paragraph 51 at page 341 the court makes a reference to the statement of law given in the Harvard Law Review, Volume 73 page 692. This statement of law also finds mention, though in truncated form, in paragraph 35 of Virender Singh Hooda (supra). The statement of law on which reliance has been placed is given in paragraph 51 of Empire Industries (supra) which reads as follows:- In the view we have taken of the expression manufacture', the concept of process being embodied in certain situation in the idea of manufacture, the impugned legislation is only making small repairs' and that is a permissible mode of legislation. In 73rd volume of Harvard Law Review P. 692 at P. 795, it has been stated as follows: It is necessary that the Legislature should be able to cure inadvertent defects in statutes or their administration by making what has been aptly called small repairs'. Moreove....
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....round was unsustainable. It is to be remembered in the instant case the assessee was not conferred with any benefit and, therefore, its subsequent withdrawal. Therefore, the retrospective amendment cannot be find fault with only on this ground. 18.3 Mr Syali also referred the judgment of the Supreme Court in the case of S.N. Mukherjee (supra) for the proposition that a quasi-judicial authority must give reasons for its orders. In this regard reliance was placed on paragraph 32 at page 1994 and paragraph 38 and 39 at pages 1996 and 1997. Briefly, this is a case where the Supreme Court was called upon to decide as to whether while confirming the findings in sentence of a general court martial the chief of the army staff was required to give reasons and also whether the Central Government while rejecting post-confirmation petition of the petitioner was required to record reasons. The Supreme Court after discussing the scheme of the Army Act, 1950 and the Rules framed thereunder came, to the conclusion that under Section 162 of the said Act reasons had to be recorded only in cases where the proceedings of a court martial are set aside or the sentence is reduced. It observed that sect....