TaxTMI 
TaxTMI 
2001 (12) TMI 197
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....bservations made in the said order. As all these appeals involve common questions, these were heard together and being disposed of by this composite order. 2. It will be in the fitness of things to give out the brief facts under which the CIT invoked the jurisdiction under section 263 of the Act. The assessee-company was engaged in manufacturing of edible vanaspati ghee during the assessment years under consideration as in the past and also started manufacturing of soap, utilising its own soap stock which was a bye-product. A survey under section 133A of the Act was conducted at the business premises of the assessee on 4-10-1988 in which two diaries/ledgers and some loose papers were found and impounded under section 131. Statement of Dr. Rohit Jindal one of the directors of the assessee-company was recorded during the survey proceedings and he allegedly admitted that entries in the seized ledgers were not recorded in the books of account of the company in the relevant period. When the assessment proceedings were in progress, the assessee moved a letter dated 4-11-1988 surrendering the additional income of Rs. 23.5 lakhs for the assessment year 1986-87, Rs. 7.5 lakhs for the ass....
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....he learned CIT also gave out the reasons on which those orders were going to be cancelled. It was pointed out that disclosure made by the assessee was neither full and true nor voluntary but was made by the assessee when assessee was cornered with the various ledgers and other loose papers found at the time of survey. The assessee submitted detailed reply to the above notice in which it was pleaded that notice issued by the CIT was without jurisdiction and without complying the mandatory conditions of section 263. The orders passed by the Assessing Officer were correct in law and proceedings were dropped after considering the full facts and the circumstances of the case and following the decision of the Hon'ble Supreme Court in the case of Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705(1). On facts, it was submitted that at no stage the assessee admitted the surrendered amount as its concealed income. Even though that addition vide letter dated 4-11-1988 was conditional one and made to purchase peace with the Department and for expeditious settlement of the cases. The assessee specifically mentioned in that application that no penal action and levy of interest wa....
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....lty under that section is leviable unless it is proved that estimate submitted by the assessee was untrue at the time of filing of estimate. In the case in hand, it was contended by the assessee that nothing is proved that estimate filed by the assessee was untrue when it was filed. About the waiver of the interest, the plea was that the Assessing Officer has rightly waived off the same in the facts and the circumstances of the case. Further reliance was also placed on certain case laws reproduced in para 11 of the order of the CIT. 6. After considering the pleas of the assessee, CIT found no merit in the same. According to him, the documents seized at the time of survey were written in the handwriting of Dr. Rohit Jindal, one of the Directors, who owned the same and admitted that transactions entered in those ledgers were not recorded in the books of account of the company. For these, the CIT reproduced relevant questions and answers relating to deposition of said Dr. Rohit Jindal. It was further noted that the contention of the assessee offer was made merely to purchase peace with the Department and for expeditious settlement of the case was also wrong as offer was made when t....
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....s. 20 lakhs were found as the amount of advance made during the year under consideration and the assessee had already made offer of Rs. 23.5 lakhs as an addition. The contention is on the basis of this note, which is reproduced by the CIT(A) in his order dated 5-9-1994 in the assessee's appeal against imposition of penalty under section 271(1)(c) of the Act for the assessment year 1986-87, which has been filed by the assessee. The plea of the learned A.R. remains that assessee made the offer with all sincerity and the amount is even more than what could have detected by the Department and on this bona fide approach of the assessee, no penalty was leviable. 8. Apart from it, the learned counsel has taken up the legal plea in respect of consequence of such offer or surrender made by the assessee. He started placing reliance on the decision of Apex Court in the case of Sir Shadilal Sugar & General Mills Ltd. in which it has been held that there may be 101 reasons for making surrender by the assessee but it is always not sufficient to attract penalty as the Revenue cannot be allowed to absolve from proving the factum of concealment with other material evidence on record. The other c....
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....the decision of Narendra Associates, Engineers & Contractors and the case of T. Narayana Pai in which the scope of jurisdiction to be exercised under section 263 by the CIT, was discussed in detail and these decisions were even cited before the learned CIT. 10. The other plea of the learned counsel for the assessee was that levy or not to levy the penalty is quasi judicial proceedings and based on objective satisfaction of the Assessing Officer. It has been held in the case of ITO v. Eastern Scales (P.) Ltd. [1978] 115 ITR 323(Cal.) that interference by superior authority in judicial or quasi judicial functions of the Officers is not called for. Following the same view, the ITAT Calcutta Bench in the case of Asstt. CIT v. Kesoram Industries Ltd. [1993] 44 ITD 158 concluded that any direction given by the higher authorities to the Assessing Officer as to manner in which a rectification order is to be passed amounts interference with his judicial or quasi-judicial functions and thus the CIT was not justified in giving such direction. On the basis of these case laws, the learned A.R. contended that the impugned order recorded by the CIT is nothing but a direction and such direction....
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....waiver of interest under Rule 40(5) for all the concerned assessment years and submitted that orders, in question, required to be cancelled. 14. As against it, the learned D.R. placed reliance on the order of the CIT(C), Ludhiana, which was said to be containing all the facts as well as reasoning. Starting from the very beginning, the learned D.R. pointed out that it was not bona fide disclosure of substantial amount made by the assessee nor it was made in order to purchase peace or not to seek expeditious disposal of assessment proceedings as averred by the assessee and argued by the learned A.R. but facts are quite otherwise. The actual facts have specifically been mentioned by the CIT that during the statement of Dr. Rohit Jindal, one of the Directors specifically admitted that entries in the ledgers seized at the time of survey were not recorded in the account books of the company and those entries were is his own handwriting and transactions relate to the business of the assessee. After these admissions made by Dr. Jindal, the Department has detected the concealed income of the assessee and when cornered, the assessee came with offer of surrender vide application dated 4-11....
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.... that ratio of both these cases is fully applicable to the facts of the case as there is concealment of income as per specific admission of Dr. Rohit Jindal but admitted that transactions entered in the ledger found at the time of seizure were not recorded in the account books of the assessee and that fact coupled with the surrender of substantial amount by the assessee. There was no other inference except treating the said amount as of concealed income. 15A. About the scope of section 263 of the Act, the learned D.R. placed reliance on the decision of the Hon'ble Gujarat High Court in the case of Addl. CIT v. Mukur Corpn. [1978] 111 ITR 312 in which the Assessing Officer failed to carry out the necessary enquiries in regard to the deduction and exercise of jurisdiction in section 263 was held justified and even in such cases the Commissioner was not expected to arrive at the firm conclusion about the allowability or otherwise of such claim of the assessee. On the basis of this ratio, the learned D.R. pointed out that the Assessing Officer did not make any enquiry as he has simply dropped the proceedings. Referring to the evidence which was available with the Assessing Officer, ....
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....ssary, observations restricting the direction of the CIT can be passed by the Tribunal. 16A. In rejoinder, the learned counsel for the assessee, pointed out that all the proceedings of penalties under sections 271(1)(c), 273(2)(aa) and waiver of interest under section 215 reached finality as no audit objection in these cases have been raised and thus final orders should have not been disturbed unless prima facie they are held to be illegal. Reiterating the earlier arguments, the learned CIT pointed out that orders have rightly been passed by the Assessing Officer after exercise of powers vested in him. The other plea of the counsel was that conditional offer made by the assessee has not been rejected and once accepted then it should be treated as accepted in toto including acceptance of plea of the assessee for not levying the penalties and interest. About addition of Rs. 1 lakh each in three assessment years, the plea of the learned A.R. was that it was on ad hoc addition and assessee in order to purchase peace did not try to appeal against it but that fact will not make that amount of Rs. 1 lakh, apart from the amount of surrender, as concealed income of the assessee. Reliance....
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....he assessee-company or has any relation to any transaction of the assessee-company. Further much reliance has been placed on the offer made by the assessee of more sum for assessment vide letter dated 4-11-1988 for all the three assessment years and further observations were that seized documents were not verified by the Department and names of the parties as well as amount involved therein could not be ascertained. He further appreciated the co-operative conduct of the assessee as assessee made immediate payment of tax on the surrendered amounts and even did not challenge the additions in appeal. These facts as well as the reasoning in the case of Mahavir Transport Co., Sohinder Singh & Bros. and other cases decided by different Benches of the I.T.A.T. relied by the assessee were taken as basis for dropping the proceedings of penalty. 18. These facts as noted by the Assessing Officer and appreciated on the basis of averments of the assessee are prima facie, not correct. A perusal of order of the learned CIT recorded under section 263 of the Act shall show that during the survey proceedings statement of Dr. Rohit Jindal, Director of the Company, was recorded and the seized ledge....
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....oceedings under section 271(1)(c) were concerned, but admittedly the Assessing Officer has not done. We are fully alive to the fact that the Assessing Officer was to find out whether prima facie case of concealment under section 271(1)(c) is made out or not but a close scrutiny of the facts existing on record made by the CIT was sufficient only to show that prima facie case of concealment was there subject to further scrutiny by the Assessing Officer as the Assessing Officer in the case while dropping penalty proceedings did not make necessary enquiries nor given out his finding on the relevant point as noted above. On these facts, the only conclusion will be that order of Assessing Officer cannot be called as made in accordance with law. The case law referred to by the parties is very much specific on the points that in case order of Assessing Officer is not in accordance with law then the same shall be erroneous as well as prejudicial to the interests of the revenue. The above discussion shall show that order in question recorded by the Assessing Officer dropping proceedings was definitely not sustainable being erroneous and prejudicial to the interest of revenue and CIT rightly ....
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....nquiries into the factum of concealment and we do the same. 23. On the basis of the above, we conclude that order of CIT was justified in the facts and the circumstances of the case and all the pleas of the learned A.R. are not going to help the case of the assessee except that Assessing Officer shall not be bound by observation of CIT in second inning. 24. So far as the penalty under section 273(2)(aa) of the Act are concerned, these are related to the factum of concealment and in case penalties under section 271(1)(c) are going to be decided against the assessee then plea of the assessee about the bona fide belief about the estimate of income shall go away. Accordingly, these penalty proceedings are to be treated as wrongly dropped by the Assessing Officer and we are not going to help the assessee but directing the Assessing Officer to decide these penalty proceedings afresh according to law, without feeling bound by the directions of the learned CIT. 25. About the orders under rule 40(5) of the Income-tax Rules for the assessment years 1986-87 and 1987-88, we are in agreement with the arguments of the learned D.R. and conclude that the CIT rightly set-aside the orders o....
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....day and the case was again adjourned to 31-10-1988. The order sheet only mentioned these facts. On the next date of hearing i.e. 4-11-1988, the assessee filed a letter which reads as under:- "In order to get expeditious completion of the assessment and to avoid long drawn assessment proceedings and to purchase peace with the department by offering full cooperation for expeditious completion of assessment, we offer to be assessed as under on the following income instead of the declared income: Income already declared before 92,53,342 deduction under section 80HH Add: Income now offered 23,50,000 &nb....
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....be belonging to the assessee company by one of the Directors Dr. Rohit Jindal. Consequently vide letter dated 4-11-1988 the assessee offered an additional income of Rs. 23.5 lakhs. These incriminating documents and subsequent offer of the assessee clearly shows that the accounts of the assessee are not reliable and deserves to be rejected. Rejecting the same, the additional income earned or investments and advances made by the assessee outside the account books is estimated at Rs. 24.5 lakhs. This includes Rs. 23.5 lakhs offered by the assessee. This is being done under section 145(2) of the Income-tax Act, 1961......" While passing this assessment order, the Assessing Officer left a note in the file which is reproduced below: "1. During the course of Survey under section 133A of the Income-tax Act, 1961 on 10-10-1988 two diaries/ledgers were found besides some other papers. These diaries related to the period relevant to the assessment years 1986-87 and 1987-88. Loose papers related to expenses etc. for current year (i.e. for A.Y. 1988-89). These diaries are in the handwriting of Dr. Rohit Jindal, Director. Shri Jindal in his statement has admitted the same. The first diary ....
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....ble on the file reiterates the same facts for dropping the penalty proceedings which were mentioned in the note dated 30-12-1988 by the earlier Assessing Officer and which has already been reproduced above. This note, however, further added as under:- "Notice under section 271(1)(c) was issued to the assessee to show cause as to why penalty under section 271(1)(c) should not be imposed. In reply, the assessee has submitted that the assessee company offered a sum for assessment to get expeditious completion of assessment and to avoid long drawn assessment proceedings and to purchase peace with the department by offering full cooperation for expeditious settlement. It also contended that at no stage the assessee company admitted that the offered amount was assessee's income or that alleged documents belonged to the assessee company or have any relation to any transaction of the assessee company. It also stated that voluntary offer of more sum for assessment vide its letter dated 4-11-1988 was made subject to the condition that penalty or penal interest shall not be charged and it was bona fide understanding on the part of the assessee and the penalty is called for. The assessee ha....
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....d the penalty proceedings for assessment years 1987-88 and 1988-89 under section 271(1)(c) and also dropped the penalty proceedings under section 273(2)(aa) for assessment years 1986-87, 1987-88 and 1988-89 on 8-11-1989. Similarly the Assessing Officer on an application by the assessee under Rule 40(5) reduced/waived the interest under section 215 for assessment years 1986-87 and 1987-88 by passing a speaking order. 8. It appears that after the orders dropping the penalties and waiving the interest were passed on 8-11-1989 by the Dy. CIT, SR, Patiala, the jurisdiction over the case was transferred to Central Circle, Ludhiana and the CIT Central, Ludhiana issued a notice under section 263(1) on 18/22-1-91 for the cancellation of the orders dropping the penalty proceedings under sections 271(1)(c) and 273(2)(aa) for the assessment years 1986-87, 1987-88 and 1988-89 and also for cancellation of order under Rule 40(5) for waiving the interest for the assessment years 1986-87 and 1987-88. After considering the submissions of the assessee as incorporated in the impugned order the learned CIT cancelled the above referred 8 orders holding them to be erroneous and prejudicial to the inte....
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....office note in the file indicating the reasons for dropping the penalty proceedings which has been reproduced by me in paras 56 above. Similarly the order for waiving interest under Rule 40(5) is a speaking order. It may be further pointed out that after setting aside was done by the CIT vide order dated 15-3-1991 the Assessing Officer allowed a fresh opportunity to the assessee for completing setting aside proceedings relating to penalties under sections 271(1)(c) and 273(2)(aa) etc. vide letter dated 19-3-1991 and the case was fixed for 25-3-1991. The assessee filed a written reply dated 25-3-1991 contending that it was filing the appeal against the order dated 15-3-1991 under section 263 to the Tribunal and prayed that the penalty proceedings may be kept in abeyance till the decision in the appeal by the Tribunal. The Assessing Officer ACIT, Central, Patiala with when the jurisdiction vested however rejected the plea of the assessee and sent draft orders dated 26-3-1991 to the Dy. CIT, Central Ludhiana which was received by him on the same date at his camp office at Patiala and was approved on 26-3-1991 itself. Penalty orders were subsequently passed on 27-3-1991. Thus it is cle....
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....t be considered as prejudicial to the interests of the revenue because penalty is not a source of revenue. Penalty in the broad sense may be defined as any suffering in person or property by way of forfeiture, deprivation or disability imposed as a punishment by law or judicial authority in respect of an act prohibited by the statute. If penalty is a suffering it will be misnomer to call it "additional tax" and thereby found jurisdiction in the CIT. No one loves taxes, it is true. But everyone dreads pains and penalties. The difference between a pecuniary penalty and a tax is that the former is a sum required in respect of an unlawful act, and the latter is a sum required in respect of a lawful act. The Hon'ble Supreme Court in Jain Bros. v. Union of India [1970] 77 ITR 107 at page 116, has observed- "Although penalty has been regarded as an additional tax in a certain sense and for certain purposes, it is not possible to hold that penalty proceedings are essentially a continuation of the proceedings relating to assessment where a return has been filed." Philosophically, linguistically and morally, it is a contradiction in terms to say that penalty is an "additional tax". To ....
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....o be defeated. The limitation enacted for the protection of the tax payer will become illusory. Nothing will be finished within the time limited by sections 263 and 275. The taxation troubles will never end. From the above discussion, it is clear that the penalty is to be measured only by tax on income which is the subject of regular assessment. After the assessment has been completed, the Assessing Officer has a discretion to inflict penalty for the violation of statutory provisions. The area within which he has to operate is indicated in Chapter XXI. Penalty has been prescribed by the Legislature for a very wide variety of defaults but the sequence of events clearly indicates that the CIT's jurisdiction extends to the "regular assessment" where the total tax liability is ascertained and the expression "assessment" cannot be expended to include a penalty under section 263. The matter can be looked at from another angle. The initiation of penalty has to be during the course of assessment proceedings after the Assessing Officer records his satisfaction to this effect. After the initiation it is the Assessing Officer who has to complete the penalty proceedings either by imposing the ....
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....ower vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the CIT the order in question is prejudicial to the interests of the revenue. But that by itself would not be enough to vest the CIT with the power of suo motu revision because the first requirement, namely, that the order is erroneous, is absent. This has been so held by the Hon'ble Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108(8). Applying the ratio of the above decision to the facts of the case it is clear that the Assessing Officer has dropped the penalty proceedings under sections 271(1)(c) and 273(2)(aa) as well as waived the interest under Rule 40(5) after duly applying his mind in exercise of his quasi-judicial powers which are vested in him by the statute, and his action cannot be termed as erroneous simply because the CIT does not feel satisfied with the conclusion. 13. Before concluding, I may point out that after the cancellation of the orders in dispute by the CIT, the successor Assessing Offi....
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....CIT has no jurisdiction to cancel the aforesaid orders passed by the Assessing Officer, is justified?" 2. At the outset, it may be mentioned that the facts of the case are recorded in the orders of both the learned Members of the Division Bench who had heard the appeals and a perusal thereof shows that they are agreed on the facts but to summarise these as follows:- The assessee is a Private Limited company deriving income from manufacturing of vanaspati ghee as also manufacturing of soap from its own stock, which is a bye-product. 3. There was a survey under section 133A at the business premises on 10-10-1988 during the course of which the following documents were found:- (i) A despatch diary containing 31 written pages in the handwriting of Dr. Rohit Jindal, one of the directors of the company relating to assessment year 1986-87; (ii) One "Neelgagan" ledger containing 59 pages in the same handwriting relating to assessment year 1987-88; and (iii) Five loose sheets containing various entries relating to assessment year 1988-89. 4. All the aforesaid documents were impounded under section 131 and the statement of Dr. Rohit Jindal was recorded during the course o....
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.... completed on identical lines i.e. by adding to the returned incomes amounts of Rs. 7.5 lakhs for the assessment year 1987-88 and Rs. 4 lakhs for the assessment year 1988-89 plus a further addition of Rs. 1 lakh in each year. The penalty proceedings were also initiated and levy of interest under section 215 was also directed for the assessment year 1987-88. As in the assessment year 1986-87 the Assessing Officer dropped the penalties under section 271(1)(c) for the assessment years 1987-88 and 1988-89 as also those under section 273(2)(aa) for the assessment years 1986-87 to 1988-89 on 8-11-1989. Similarly on application under Rule 40(5) the Assessing Officer by means of a speaking order waived/reduced interest under section 215 for the assessment years 1986-87 and 1987-88. 7. After the various orders dropping the penalty proceedings and waiving interest were passed by the Assessing Officer numbering in all to 8 the Commissioner of Income-tax issued notice under section 263 on 18/22-1-1991 for cancelling the orders on the ground that these were erroneous and prejudicial to the interests of the revenue. After considering the submissions of the assessee opposing the action under s....
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....Commissioner of Income-tax, who invoked the provisions of section 263 it was necessary on the part of the CIT to specify in the order as to in which manner he considered the order of the Assessing Officer as erroneous and prejudicial. Reliance was placed on the following judgments:- (i) Transactional Analytic Centre for Education Research & Trng.'s case; (ii) Island Sea Foods (P.) Ltd.'s case; and (iii) Narendra Associates, Engineers & Centre-actors' case; (vi) To levy or not to levy the penalty was in the realm of quasi-judicial proceedings based on objective satisfaction of the Assessing Officer and interference therein by a superior authority in judicial or quasi-judicial functions of the officer was not called for. Reliance was placed on the following judgments:- (i) Eastern Scales (P.) Ltd.'s case; (ii) Kesoram Industries Ltd.'s case; (vii) That the Assessing Officer had before dropping the penalty proceedings under sections 271(1)(c) and 273(2)(aa) made detailed enquiries and this was also the position in waiving interest under section 215 and under these circumstances no interference was called for at the hands of the CIT; (viii) The view taken by the....
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....d when the assessee found itself cornered it came forward with the offer of surrender and made a prayer to the effect that no penalty proceedings be initiated or penal interest be charged; (4) The Assessing Officer did not accept the offer as penalty proceedings were initiated; (5) It was wrong on the part of the assessee's counsel to state that the amount offered by the assessee alone was added to the total income since in each of the assessment years in question additions of Rs. 1,00,000 over and above the surrendered amounts were made; (6) It was a case of contumacious concealment of income by the assessee as duly supported by evidence in the shape of seized ledgers and loose papers and the specific admission made by Dr. Rohit Jindal; (7) It was improper on the part of the assessee's counsel to say that except the offer no other evidence was available with the Department to charge the assessee with the penalty for concealment or of filing wrong estimate of advance tax; (8) That after an admission has been made and subsequently the assessee comes up with a surrender, then it cannot be a case where penalty can be dropped/waived, more so, when on the facts and the ev....
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.... enquiries about the seized ledgers and documents. In respect of the decisions relied upon by the Department, the learned counsel stated that these were distinguishable and not applicable to the facts of the assessee's case. In concluding it was urged that the orders dropping the penalty proceedings as also the action of waiver of interest under section 215 be upheld. 13. The learned Judicial Member, who passed the initial order, at the outset, referred to the order passed by the Assessing Officer dropping the proceedings under section 271(1)(c) for the three assessment years observing that the order was not a speaking one. He also referred to the order passed by the Commissioner of Income-tax(Appeals), Patiala in respect of the penalty levied under section 271(1)(c) by the Assessing Officer pursuant to the order under section 263 passed by the CIT highlighting the office note dated 30-12-1989 by means of which the penalty proceedings were proposed to be dropped. In para 17 of his order the learned Judicial Member has discussed the said office note observing that a note had been taken of the reply to the show-cause notice and further the assessee nowhere admits that the surrende....
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.... detection. He was also of the view that the Assessing Officer should have decided conclusively as to whether there was any signed agreement in between the assessee and the Department before the surrender application was filed. According to the learned Judicial Member the Assessing Officer should have after due investigation given a finding as to whether the surrendered amount was the concealed income of the assessee or not. The conclusion, in other words, was that the Assessing Officer while dropping the penalty proceedings did not make necessary enquiries nor give any findings on relevant points and this in turn meant that the order of the Assessing Officer could not be called as made in accordance with the law and the action of the CIT in holding the same to be erroneous and prejudicial to the interests of Revenue was justified. 14. As regards the plea on behalf of the assessee that surrender itself would not lead to the conclusion that there had been concealment of income leading to penalty the learned Judicial Member observed that the admission of Dr. Rohit Jindal coupled with the seized incriminatory documents was sufficient evidence which in fact should have been scrutini....
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....t:- (a) The entries in one diary were got tallied from the regular sales for the assessment year 1986-87 and although it was the assessee's explanation that Dr. Rohit Jindal had just started sitting in the office and noted down the dispatches in the diary, which were later on transferred to the regular books, it could not be ruled out that some of the transactions might not be recorded as exact verification was difficult, there being no address against each entry; (b) The second diary contained entries pertaining to advances to various parties and at some places the entries were legible, but in most they were not legible as these have either been cut or mutilated. The entries no doubt relate to the assessee-company and are in the handwriting of Dr. Rohit Jindal, but the quantities of advances are difficult to make out; (c) Considering the fact that the entries are difficult to decipher, but on rough estimate the advances are about Rs. 20 lakhs during the period under consideration the offer at Rs. 23.5 lakhs appears to be correct. (iv) Coming to the penalty proceedings, these had been initiated and interest was also directed to be charged under section 215 and in respon....
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.... in accordance with law and material on record inasmuch as while the penalties have been dropped by a single line order, the Assessing Officer had given a detailed office note in the file indicating the reasons for dropping the penalty proceedings and similarly the order for waiver of interest under Rule 40(5) was a speaking order. It was also noted by the learned Accountant Member that after the set aside by the Commissioner of Income-tax, the Assessing Officer had allowed a fresh opportunity to the assessee for completing the set aside proceedings relevant to penalties under sections 271(1)(c) and 273(2)(aa) and the hearing was fixed on 25-3-1991, but on which date the assessee by means of a written reply contended that it was filing appeals against the order of the Commissioner under section 263 and prayed that the penalty proceedings be kept in abeyance till the decision of the appeal by the Tribunal, but rather than accepting the said request the Assessing Officer rejected the same and made draft order dated 26-3-1991 sending the same for approval to the Dy. Commissioner of Income-tax (Central), Ludhiana, and which was received by him on the same date at his camp office at Pat....
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....duty was assigned to the Assessing Officer by the Legislature and it was he who had to be satisfied in the course of the assessment proceedings that penalty proceedings should be initiated. According to the learned Accountant Member, the CIT acting under section 263 could only cancel an assessment directing it to be made afresh, but he could not impose penalty. The further observations in the same direction on the part of the learned Accountant Member were with reference to provisions of section 275 as also section 263(2) i.e. both on the aspect of limitation. The learned Accountant Member was also of the view that the powers of the CIT under section 263 extended to a "regular assessment" where the total tax liability was ascertained and the expression "assessment" could not be extendable under section 263 to include a penalty. According to him the initiation of penalty had to be during the course of the assessment proceedings after the Assessing Officer recorded his satisfaction and after such initiation it was for the Assessing Officer to complete the penalty proceedings either by imposing the penalty or by dropping the same after considering the submissions of the assessee and t....
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....d accordingly. 20. Before me the learned counsel for the appellant argued at length and his main submissions are highlighted as under:- (i) The Commissioner had cancelled the orders passed by the Assessing Officer dropping the penalties and waiving interest and it was not the case of mere set aside; (ii) Under section 263 only assessment orders could be modified or cancelled, but not penalty orders; (iii) It was only the Assessing Officer or the first appellate authority who can initiate and levy penalties and not the Commissioner of Income-tax; (iv) What a person or an authority cannot do directly cannot be allowed in law to be done indirectly and in the present cases the Commissioner although not empowered to levy penalties, cancelled the orders of the Assessing Officer dropping such penalties; (v) The manner in which the CIT had acted under section 263 had made the provisions of section 275 pertaining to limitation nugatory; (vi) The Commissioner could not tamper with penalty orders without cancelling the assessments; (vii) For penalty recording of satisfaction was necessary and it was to be done during the course of assessment proceedings whereas by the ....
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.... Judicial Member had described the orders as non-speaking once, but choosing to ignore the detailed office notes and whereas the CIT had not said so; (xxiii) There was ample case law for the preposition that even where penalty is not initiated the CIT cannot act under section 263; (xxiv) There was ample case law for the proposition that the CIT acting under section 263 could not substitute his opinion for that of the Assessing Officer and the present could be treated even as a case of "change of opinion"; (xxv) The jurisdiction of the cases changed from CIT, Patiala to CIT(Central) and whereas the former did not act under section 263 when the jurisdiction was vested with him the latter did; (xxvi) The statement of Shri Rohit Jindal was duly considered in the office note and the observation of the Judicial Member to the contrary was not correct. 21. In conclusion the learned counsel vehemently supported the order of the learned Accountant Member placing reliance on the following decisions: (i) Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83(9)(SC) (ii) Sir Shadilal Sugar & General Mills Ltd.'s case (iii) Kanshi Ram Wadhwa v. CIT [1982] 138 ITR 830(10)(Pu....
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....here was no assurance by the Department to the assessee not to initiate or levy the penalty; (9) The CIT had not stepped into the shoes of the Assessing Officer as he had asked him to decide the matter afresh; (10) The learned Judicial Member had only clarified the view of the CIT (Para 22 of his order) and the assessee was not put in the type of adverse position as canvassed by its counsel; (11) The Assessing Officer had not kept in mind relevant documents before dropping the proceedings under section 273(2)(aa); (12) Orders of waiver under Rule 40 could not be passed in view of the facts and circumstances of the case. 23. In concluding the learned Departmental Representative supported the view expressed by the learned Judicial Member. 24. In reply the learned counsel for the assessee reiterated that the Assessing Officer had considered the diary and statement of Shri Rohit Jindal before passing the necessary orders. Further submission was that applying the doctrine of approbate and reprobate a document should be considered in full. This was with reference to the documents and statement where points in favour of the assessee were also present. The further submission of the l....
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.... the penalty had been initiated under section 271(1)(c) merely on the basis of the surrender made by the assessee and at the instance of the Assessing Officer, then the matter would have stood on a different footing. In the present case, the penalty proceedings were initiated with reference to the survey carried out under section 133A when the statement of Shri Rohit Jindal, Director of the company was recorded with reference to certain diaries etc. found. It could be said that the assessee had no option, but to surrender certain amounts when placed in an adverse situation and in case the Assessing Officer had accepted the amounts surrendered and not done anything else the assessee could have argued that the surrender had been made to buy peace, but the Assessing Officer made further enquiries and found that the offer made was inadequate and this led to further additions of Rs. 1,00,000 in each of the assessment years under consideration. 27. It could also be argued that the Assessing Officer had accepted the offer of the assessee, but this was not correct since penalty proceedings had been initiated. However, it must be emphasised that in law an authority which can initiate pen....
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....esent reference I do not propose to repeat them, but these would be treated as a part of the present order. At pages 30 and 31 of the order of the learned Accountant Member the office note of the Assessing Officer is reproduced and specific reference may be made to the following:- (i) The entries in the first diary were got tallied from the regular sales for the assessment year 1986-87; (ii) Dr. Jindal had just started sitting in the office and used to note down the dispatches on the diary, which were later on transferred to regular books. However, it cannot be ruled out that some of the transactions might not be recorded as exact verification is very difficult, there being no address against such entry; (iii) The quantities of advances, however, are difficult to make out; (iv) The assessee voluntarily offered an amount of Rs. 23.5 lakhs to be assessed for assessment year under consideration; and (v) Looking to the fact that these entries are difficult to decipher and even on rough estimate the advances are about Rs. 20 lakhs only during the period under consideration, but offer at Rs. 23.5 lakhs appears to be correct in context. 30. The learned Accountant Member ....
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....t was also valid in the eyes of law and the same has been cancelled by the Commissioner of Income-tax consequential to the view taken by him in respect of the penalties under sections 271(1)(c) and 273(2)(aa). 32. In the ultimate analysis, I hold that inasmuch as the Assessing Officer had dropped the penalties on the appreciation of facts and due application of mind the Commissioner could not exercise his powers under section 263 to cancel such orders as also to set at naught the order for waiver of interest. The learned Judicial member has also mentioned that the orders dropping the penalty proceedings were non-speaking ones, but the learned Accountant Member has set out at length in his separate order the detailed office notes recorded by the Assessing Officer and to which I have already referred in the earlier part of the present order. In the view that I have taken aforesaid, I do not find it necessary to deal with certain other arguments advanced by the parties and these pertaining to other facets of the controversy and which I do not propose to decide in the present reference. The learned Accountant Member has written much about the status, which is to be accorded to a pen....