Commissioner of Income Tax vs Late A.R. Chadha through L/H Cm. Chadha

Badar Durrez Ahmed, J.—In all these appeals the question relates to imposition of penalty u/s 271(1)(c) of the Income Tax Act, 1961. The assessment orders in these matters were made prior to 1-4-1989 and are, therefore, unaffected by the retrospective amendment brought by the insertion of Sub-section (IB) in Section 271 of the said Act with effect from 1-4-1989 by virtue of the Finance Act, 2008.

The Full Bench in the case of CIT v. Rampur Engineering Co. Ltd being IT Appeal No. 211 of 2006 and other connected matters decided on 27-11-2008 (reported at (2008) 16 DTR 281 (Del)--Ed.), after considering the question of recording of satisfaction with regard to initiation of penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961observed as under:

In our opinion, the legal position is well settled in view of the Supreme Court decisions in CIT and Anr. v. S.V. Angidi Chettiar (supra) and DM. Manasvi v. CIT (supra) that power to impose penalty u/s 271 of the Act depends upon the satisfaction of the Income Tax Officer in the course of the proceedings under the Act. It cannot be exercised if he is not satisfied and has not recorded his satisfaction about the existence of the conditions specified in Clauses (a), (b) and (c) before the proceedings are concluded. It is true that mere absence of the words I am satisfied may not be fatal but such a satisfaction must be spelt out from the order of the assessing authority as to the concealment of income or deliberately furnishing inaccurate particulars. In the absence of a clear finding as to the concealment of income or deliberately furnishing inaccurate particulars, the initiation of penalty proceedings will be without jurisdiction. In our opinion, the law is correctly laid down in Ram Commercial Enterprises (supra) and we are in respectful agreement with the same. The reference is answered accordingly.

From the above extract, it is apparent that the Full Bench held that although the mere absence of words "I am satisfied" may not be fatal but such a satisfaction must be spelt out from the orders of the assessing authority as to the concealment of the income or deliberate furnishing of inaccurate particulars. The Full Bench held that in the absence of a clear finding as to the concealment of income or deliberate furnishing of inaccurate particulars, the initiation of penalty proceedings would be without jurisdiction. The Full Bench also held that the law is correctly laid down in Commissioner of Income Tax Vs. Ram Commercial Enterprises Ltd.,

In the present appeals arising out of the common order passed by the Tribunal on 22-11-2004 we find that the assessment orders do not pass the test as laid down by the Full Bench. Apart from merely recording that penalty proceedings u/s 271(1)(c) have been initiated separately, there is no finding in the assessment order as to concealment of income or deliberate furnishing of inaccurate particulars in the assessment order itself. Thus even though penalty proceedings have been initiated, it cannot be said that the assessing officer was satisfied about the existence of conditions specified in Clause (c) before the assessment proceedings were concluded. We also note that the Tribunal had also held that the satisfaction had not been recorded by the assessing officer at the time of initiation of penalty proceedings. The Tribunal also observed that all that had been mentioned in the assessment order was that the penalty proceedings were being initiated separately.

In the light of the Full Bench decision in CIT v. Rampur Engineering Co. Ltd. (supra), the conclusion arrived at by the Tribunal cannot be faulted.

The appeals are dismissed.