The appeal of the assessee for assessment year 1987-88 is directed against the order dated 13-12-1993 of Commissioner (Appeals)-VI, Ahmedabad. The only dispute involved in this appeal is relating to penalty of Rs. 59,302 under section 271 (1)(c) of the Income Tax Act.
The rival contentions have been heard and record perused.
The relevant facts in this case are that the appellant had filed a return of income for assessment year 1987-88 on 5-8-1987 showing income of Rs. 52,919. On 20-8-1987, i.e., subsequent to the filing of the original return, a search was carried out in the case of the assessee and other two cases during which some incriminating documents and papers were found and seized. During the course of search, the assessee was confronted with seized diaries exhibited as A24 and A26 on the basis of which the assessee expressed her desire to make a declaration of unaccounted income. In the course of the search, while recording the statement under section 132(4), the assessee was asked as to whether she wanted to disclose unaccounted income under section 271(1)(c) of the Income Tax Act read with Explanation 5 thereto so as to get immunity from penalty. She had replied that in accordance with the above provision of law, she wanted to declare the entire unaccounted income. Subsequently, on 25-8-1987, a letter was addressed to the Assistant Director of Inspection, wherein the details of the income to be disclosed were indicated and the manner in which the income was earned was also narrated. On 30-3-1988, the assessee filed a revised return declaring income of Rs. 2,02,778 which included a sum of Rs. 1,47,500 as undisclosed income. The assessing officer completed the assessment on 30-3-1990 on total income of Rs. 1,92,020 later revised to Rs. 1,83,020 by way of rectification. In the finally assessed income, the concealed income was determined at Rs. 1,27,500 as against Rs. 1,47,500 disclosed by the assessee in the revised return. The variation was on account of the fact that the assessing officer determined the income on the basis of the financial year whereas the assessee had worked out the unaccounted income on the basis of the different accounting year adopted by her. The assessing officer had also initiated penalty proceedings under section 27(1)(c) of the Income Tax Act and had issued a show-cause notice in response to which a written reply dated 6-7-1990 was filed. In the aforementioned reply, the assessee pleaded that there was no concealment of income as the correct income had been disclosed in the revised return which was accepted by the assessing officer. It was also claimed that since the disclosure was made during the course of search, the assessee was entitled to immunity from levy of penalty by virtue of Explanation 5 to section 271(1)(c) of the Income Tax Act. The assessing officer rejected the claim of the assessee on the ground that the assessee had filed original return before the date of search and, therefore, Explanation 5 to section 271(1)(c) of the Income Tax Act was not attracted. The assessing officer being satisfied that penalty under section 271(1)(c) of the Income Tax Act was chargeable, calculated the tax sought to be evaded at Rs. 59,302 but imposed the penalty of Rs. 75,000 (the penalty could be upto 200 per cent of the tax sought to be evaded).
Before the Commissioner (Appeals), the learned counsel for the assessee had conceded that Explanation 5 to section 271(1)(c) of the Income Tax Act was not attracted in this case as the assessee had filed the return of income before the search. It was, however, pleaded that the assessee had made the disclosure on the basis of the statement recorded during the course of search in which the authorised officer had asked the assessee as to whether she wanted to disclose her unaccounted income under section 271(1)(c) of the Income Tax Act read with Explanation 5 and that if she did so she would get immunity from levy of penalty. The assessee had promptly replied that she wanted to declare her entire unaccounted income and subsequently, a letter was filed wherein details of the disclosure were worked out. This was followed by a revised return which was accepted. Thus it was contended that the department having lured the assessee to make a disclosure, it was unjust and unreasonable for it to impose the penalty under section 271(1)(c) of the Income Tax Act. It was claimed that the assessee came forward to make a disclosure only on the assurance that she would get immunity from levy of penalty.
The Commissioner (Appeals) has also rejected the claim of the assessee.
It has been held by the Commissioner (Appeals) that assessees case is not covered under any of the exceptions of Explanation 5-the fact which was admitted by the counsel of the assessee. Regarding the claim of the assessee that she was lured to make a disclosure on the assurance that no penalty would be imposed if a disclosure was made, the learned Commissioner (Appeals) has held that a question was admittedly asked during the course of recording of the statement as to whether the assessee wanted to make a disclosure in accordance with the provisions of section 271(1)(c) in order to get the benefit of Explanation 5 of the said section. According to the learned Commissioner (Appeals), what the assessing officer had suggested was relating to a declaration in accordance with the provisions of under section 271(1)(c) of the Income Tax Act. If the disclosure was not in accordance with Explanation 5 to section 271(1)(c) penalty warranted under the law would be justified and that the revenue had at no stage promised that penalty would not be imposed, even if the case is not covered under Explanation 5 to under section 271(1)(c) of the Income Tax Act. The Commissioner (Appeals) further held that the question put to the assessee was of general nature and that in any case there could be no promise contrary to the statute. He, however, had reduced the penalty from Rs. 75,000 to Rs. 59,302 being the minimum imposable in this case. The learned Commissioner (Appeals) has sought to distinguish the decision of the Honble Gujarat High Court in the case of Taiyabji Lukmanji v. CIT (1981) 131 ITR 643 (Guj) on the ground that the Honble High Court has taken cognizance of the Circular issued by the Central Board of Direct Taxes in which the assessees were advised to file revised return to avoid penal consequences of discovery by the department. In that case, the assessee had voluntarily come forward to file a revised return acting on the promise held out by the Central Board of Direct Taxes Circular. It has been further held by the Commissioner (Appeals) that in the present case, unaccounted income was detected during the course of the search and assessees attention was drawn to the provisions of section 271(1)(c) of the Income Tax Act and asked to make a declaration in accordance with the provisions of the Act. He has, accordingly, held that there was no promise for not imposing the penalty in respect of the concealed income which was not covered under Explanation 5 to section 271(1)(c) of the Income Tax Act.
The assessee is in appeal against this decision of the Commissioner (Appeals).
The learned counsel for the assessee made the following contentions in support of the appeal (i) That during the course of search, the company of which the appellant was managing director, was found to have earned income which had not been offered for taxation. Thus, a declaration was made of Rs. 80 lakhs which was accepted by the department. Out of the said declaration, the money appropriated by the assessee out of the receipts from the company were also offered for taxation in the hands of the assessee. According to the learned counsel, the income of the company, namely Hynoup Food and Oil Industries having suffered tax on the undisclosed income, the receipts out of the said income by the managing director could not be subjected to tax once again in the hands of the managing director. Though the assessee had disclosed the income in her revised return by sheer ignorance and has also paid tax on the said income that would not deter her in taking a plea in the penalty proceedings that such income was not liable to tax and, accordingly, penalty under section 271(1)(c) of the Income Tax Act is not warranted.
Elaborating this contention, it was submitted by the learned counsel that the amount received by the managing director out of the income offered for taxation in the hands of the company was neither dividend nor deemed dividend and, therefore, not chargeable to tax. It was, accordingly, pleaded that the penalty under section 271 (1)(c) of the Income Tax Act may be deleted.
(ii) The second issue raised by the learned counsel for the assessee is regarding the initiation of penalty proceedings during the course of assessment proceedings. Inviting our attention to the assessment order, it was contended that the assessing officer has directed "issue notice under section 271(1)(c)". According to the learned counsel, he has not recorded proper satisfaction for initiation of penalty proceedings.
Relying upon the decision of the Delhi High Court in the case of CIT v.Ram Commercial Enterprises Ltd. (2000) 246 ITR 568 (Del), it was contended that mere issue of notice under section 271(1)(c) of the Income Tax Act is not enough for validity of the penalty proceedings.
The penalty proceedings not having been properly initiated in accordance with law, the penalty imposed is bad in law.
(iii) The third issue raised by the learned counsel for the assessee is regarding the alleged assurance given to the assessee by the authorised officer during the course of search while recording the statement under section 132(4). It was contended that once the department had lured the assessee to make a declaration on the assurance that no penalty would be imposed, the department was estopped from levying the penalty. In this connection, reliance was placed on the decision of the Honble Gujarat High Court in the case of Taiyabji Lukmanji (supra) and the decision of the Ahmedabad Bench of the Tribunal in the case of Ashok Natverlal Patel v. ACIT (1998) 67 ITD 82. It was, accordingly, pleaded that the penalty under section 271(1)(c) of the Income Tax Act may be cancelled.
The learned counsel for the assessee also pointed out that as a matter of fact that for assessment year 1986-87, no penalty was imposed by the revenue on similar facts. For assessment year 1988-89 also, no penalty was imposed. But it was fairly conceded that for that assessment year, no return had been filed prior to the date of search and the disclosure was covered under Explanation 5 to section 271(1)(c) of the Income Tax Act.
The learned Departmental Representative, on the other hand, contended that the income received by the assessee from the company was distribution of profits by the company and, therefore, was liable to tax in the hands of the managing director. Therefore, there is no merit in the argument advanced on behalf of the assessee that the income itself was not liable to tax in the hands of the appellant. It was further contended that the assessees counsel had himself conceded before the Commissioner (Appeals) that Explanation 5 to section 271(1)(c) of the Income Tax Act was inapplicable to the facts of this case. There was a search in this case on 20-8-1987 and incriminating documents were seized during the course of search. Since the concealment was detected on the basis of the material found during the course of search and the assessee having failed to disclose the concealed income in the original return, had subjected herself to the liability of penalty under section 271(1)(c) of the Income Tax Act.
Referring to the contention on behalf of the assessee that she was lured to make a declaration on the assurance that no penalty was imposed, the learned Departmental Representative invited my attention to the assessment order in which it is clearly mentioned that the appellant was carrying on the legal profession besides being the managing director of the company namely, Hynoup Food and Oil Industries Ltd. As per the instructions of the Central Board of Direct Taxes, the authorised officer of the search is under instruction to invite the attention of the assessee to the provisions of section 271(1)(c) for making a declaration in accordance with the provisions of the Act.
Therefore, the contention advanced on behalf of the assessee that she did not understand the implications of the provisions of section 271(1)(c) is not acceptable. According to the learned Departmental Representative, what the authorised officer has promised was non-imposition of penalty in respect of declaration covered under Explanation 5 to section 271(1)(c) of the Income Tax Act. The officer had not given the assurance that no penalty would be imposed in respect of any amount disclosed which may not be covered under Explanation 5 to section 271(1)(c) of the Income Tax Act. According to the learned Departmental Representative, the assessees counsel having himself conceded before the Commissioner (Appeals) that Explanation 5 to section 271(1)(c) of the Income Tax Act was not attracted in this case, the question asked during the course of search was of no consequence.
Relying upon the decision of the Madras Bench of the Tribunal in the case of S. Sivakumar v. ACIT (1998) 64 ITD 149 (Mad), it was contended that in any case, there cannot be any estoppel against the statute.
Reliance was also placed on the decision of Honble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. (1979) 118 ITR 326 (SC) as also decision of the Madras High Court in the case of H.V. Venugopal Chettiar v. CIT (1985) 153 ITR 376 (Mad). It was further contended that the assessee was found to have concealed the income which was not disclosed in the original return penalty under section 271(1)(c) of the Income Tax Act was attracted in this case.
The learned Departmental Representative further contended that the contention on behalf of the assessee that penalty proceedings had not been properly initiated is also not well-founded. It was contended that it was well settled principle of law that ITNS 150 is part of the assessment order. Whereas it is necessary for the assessing officer to record a satisfaction in the course of the assessment proceedings, it is not necessary that the same should be incorporated in the assessment order. Therefore, without verifying the record, one cannot say that the assessing officer had not validly initiated the penalty proceedings. It was further contended that the assessee had not raised this issue before the revenue authorities. Reliance in this regard was placed on the decision of the Allahabad High Court in the case of CIT v. Jai Narain (2000) 245 ITR 151 (All). The learned Departmental Representative further contended that the facts in the case of Ashok Natverlal Patel(supra) were distinguishable with the facts in the present case. It was, accordingly, pleaded that the appeal of the assessee may be dismissed.
The learned counsel for the assessee in counter-reply relied upon the decision of the Honble Gujarat High Court in the case of Rambhai L.
Patel v. CIT (2001) 252 ITR 846 (Guj) and that of the Honble Supreme Court in the case of CIT v. Suresh Chandra Mittal (2001) 251 ITR 9 (SC) in support of the contention that penalty in this case is not warranted. It was further pointed out by the learned counsel that the department at no stage held that the amount received by the assessee was in the form of dividend and, accordingly, assessable in the hands of the assessee. The learned counsel further reiterated that the receipt in the hands of the appellant from the company did not fall within the definition of "deemed dividend" under section 2(22). It was, accordingly, pleaded that the appeal of the assessee may be allowed.
I have given my careful consideration to the rival contentions. It is a case where Explanation 5 to section 271(1)(c) of the Income Tax Act is admittedly not applicable as the assessment year involved is prior to the date of search and after the assessee having filed the return of income. It may be pertinent to mention that where the assessee had not filed any return of income, the courts had expressed the view that assessee cannot be said to have concealed the income as the act of concealment presupposes non-disclosure of income in the return. In order to cover the loopholes, the legislature in its wisdom incorporated Explanation 5 to section 271(1)(c) of the Income Tax Act expanding the scope of penalty for concealment even in such cases under certain circumstances. However, in order to avoid hardships in genuine cases, some exceptions have been carved out under the said Explanation.
The assessees case admittedly does not fall either wider Explanation 5 to section 271(1)(c) of the Income Tax Act or under the exceptions therein. It is, therefore, necessary to consider as to whether the assessees case falls under the main provisions of section 271(1)(c). A return of income had been filed declaring income of Rs. 52,919. There was a search in this case on 20-8-1987 when the return had been filed on 5-8-1987. It is not disputed that some incriminating documents were seized during the course of search on the basis of which it transpired that the company of which the appellant was the managing director, had not disclosed substantial income from business. The appellant admitted the non-disclosure of the income and agreed to make a declaration of Rs. 80 lakhs in the hands of the company. From the seized material itself, it further transpired that out of the undisclosed profit, the appellant had received part of the undisclosed income earned by the company. It seems that the entire receipts in various years from the company by the appellant were not offered for taxation. Amounts re-invested in the company by the appellant have been excluded from the assessable income of the assessee. However, the amounts received and appropriated other than investment in the same company have been accepted as taxable income in the hands of the appellant. The said income was offered for taxation firstly by way of a letter written on 25-8-1987 and subsequently by filing a revised return.
It is well settled principle of law that whether penalty under section 271(1)(c) of the Income Tax Act for concealment of income is attracted in a case or not will depend on the facts and circumstances of each case. It is also well settled that where the assessee offers some income for taxation without admitting it to be the concealed income and the department not having any material to establish that the income so offered represented the concealed income of the assessee, penalty under section 271(1)(c) of the Income Tax Act may not be warranted. So however, where the department of revenue is in possession of the material relating to the concealment of income, the mere fact that the assessee has offered the concealed income for taxation by way of a letter or by way of a revised return of income does not have a mitigating effect on the imposition of penalty under section 271(1)(c) of the Income Tax Act. The crucial test, in my view, in the cases of acceptance or surrender of concealed income is to find out as to whether the assessee would be liable to penalty under section 271(1)(c) of the Income Tax Act if the disclosure of income by him/her is to be ignored. If it is found that the assessee would be liable to tax notwithstanding the fact that his or her disclosure of income in the statement or in the return is ignored, the assessee would be liable to penalty under section 271(1)(c). On the other hand, if the assessee had agreed to be assessed on some income in order to buy peace of mind, the mere fact that he had agreed to be assessed on the income may not be sufficient for him or her to be liable to penalty for concealment of income. In this case, as already pointed out, the department had seized sufficient material in the course of search to establish that the company had earned substantial income which was not offered to tax. It was also found that the appellant has also received amounts out of the undisclosed income of the company of which she was the managing director. Therefore, the facts and circumstances in this case clearly suggest that the assessment of the undisclosed income of the appellant as well as of the company in which she was the managing director was not merely on the basis of the disclosure made by the company or by the appellant. It was on the basis of the seized material further corroborated by the admission of the appellant of having concealed the income. Therefore, in my considered view, the case of the appellant falls within the ambit of section 271(1)(c) of the Income Tax Act and filing of the revised return or agreeing to be assessed on the undisclosed income is of no consequence in this case.
I would now proceed to consider seemingly very attractive argument advanced on behalf of the assessee that the receipts from the company from undisclosed income are not liable to tax in the hands of the director/shareholder and, accordingly, the mere fact that amount had been taxed on agreed basis does not warrant imposition of penalty under section 271(1)(c) of the Income Tax Act in respect of the said income.
This issue had also come up before me in the case of Shri Ashwinbhai P.Patel v. Asstt. CIT [IT Appeal No. 329 (Ahd) of 1994 dated 26-11-2001] and the contention was rejected. However, the learned counsel for the assessee was vehement in his argument relating to this issue. I, therefore, consider it appropriate to deal with this issue more elaborately.
As per the scheme of the Income Tax Act, 1961, the income of a company is liable to tax when the income is distributed amongst the shareholders by way of dividend, the Act provides for levy of tax on the distribution of income also in the hands of the shareholders. It was argued before me that the amount received by the appellant was not by way of dividend declared by the company and, therefore, it would not fall within the taxable income in the hands of the appellant. The contention advanced on behalf of the assessee that the taxation in the hands of the appellant would be hit by the principle of double taxation. In my view, is not well founded. As already pointed out, the legislature in its wisdom as per the law applicable to the relevant assessment year had made the income in the hands of the company to be taxable at specified rate. The distribution of income by way of dividend was also made taxable. Thus, the issue to be dealt with is as to whether the amount received by the appellant out of the undisclosed income would amount to dividend within the meaning of "assessable to tax" in accordance with the provisions of the Income Tax Act., 1961.
Section 2(24) of the Income Tax Act, 1961 defines "income" to include : (a) Any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company; (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31-5-1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereinafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder to the extent to which the company in either case possesses accumulated profits;" It is evident from the definition of "income" that any dividend distributed by a company to its shareholders is included in the income chargeable to tax under section 4 of the Income Tax Act, 1961. The question that requires to be considered is as to whether the dividend distributed to its shareholders would mean only a dividend which is distributed in accordance with the provisions of the Companies Act or would it include any distribution of profits after following the procedure laid down by law or even otherwise. In the case of Kishinchand Chellararn v. CIT (1962) 46 ITR 640 (SC), Their Lordships of the Honble Supreme Court held that dividend does not lose its taxable character as dividend merely because it is paid out of capital in violation of law. Similarly, in the case of Kantilal Manilal v. CIT (1961) 41 ITR 275 (SC), Their Lordships held that non-observance by the company of the formalities required by the Company Law for declaration of dividend would not affect the shareholders liability to tax in respect of the dividend. In the case of CIT v. Central India Industries Ltd. (1971) 82 ITR 555 (SC). Their Lordships of the Honble Supreme Court held that the question whether the dividend distributed by the company A was out of its profits or not was not material; the distributing company might have acted illegally and thereby incurred penalties and yet the amount so distributed was assessable in the hands of the shareholders in view of section 16(2) of the Income Tax Act, 1922. The decision of the Hon'ble Supreme Court in the case of Kantilal Manilal (supra) is also relevant. In this case, the Bank of India which had passed a resolution for increasing its share capital, offered new shares of Rs. 50 each to its existing shareholders in the proportion of one new share for every three shares held by them, at a premium of Rs. 50 Nav Gujarat Mills Ltd. which held 5000 shares in the bank and became entitled to 1666 new shares, purchased 60 shares and pursuant to a resolution of its Board of Directors, distributed the right to purchase the remaining 1600 shares among its shareholders in the proportion of two shares of the bank for each share held by them in the mill. The appellant who held 570 shares in the mills and became entitled to purchase 1140 new shares of the bank, agreed to the allotment of those shares and ultimately transferred them to a private company. On these facts, it was held by the Hon'ble Supreme Court that the distribution of the right to apply for and obtain two shares of the Bank of India for each share held by the shareholders of the mill amounted to distribution of dividend and the appellants were taxable in respect of the value of the right.
15. It is evident from the aforementioned decision that a dividend is distribution of profits by the company amongst the shareholders and it is assessable to tax. It may also be pertinent to mention that various companies instead of distributing their accumulated profits as dividend amongst the shareholders indulged in advancing loans to the shareholders so as to avoid the taxation of dividend in the hands of the shareholders. The legislature in its wisdom incorporated section 2(22) of the Income Tax Act, 1961 to provide for taxation of such advances or loans to the shareholders as deemed dividend.
16. Thus, the intention of the legislature becomes absolutely clear about the assessability of the distribution of profits in the hands of the shareholders notwithstanding the colour which is given by the company to the distribution of such profits. Reference may also be pertinent to the decision of the Hon'ble Supreme Court in the case of CIT v. G.R. Karthikeyan (1993) 201 ITR 866 (SC) and also to the decision of the same court in the case of Universal Radiators v. CIT (1993) 201 ITR 800 (SC) where Their Lordships of the Hon'ble Supreme Court have explained the concept of income. Therefore, once it is evident that there is legislative intent for the taxation of the income distributed by the company amongst the shareholders, there is no escape from the conclusion that such distribution is assessable to tax whether it is distributed as a dividend in accordance with law or otherwise out of the concealed income. If the contention on behalf of the assessee is accepted, it would result into a disincentive for honest tax payers and an incentive to those who are not so honest. In other words, a company following the letter of law discloses true income and distributing dividend in accordance with law would have to pay tax on the income earned and their shareholders would also be liable to tax in respect of the distribution of profits by way of dividend. On the other hand, a company having concealed the income and when detected would pay the tax on the concealed income, but its shareholders would not be liable to tax on the profits of the company distributed amongst the shareholders.
Such a contention is apparently illogical and deserves to be out rightly rejected. Taking the totality of the facts and circumstances of this case into consideration, I am of the considered view that the concealed income by the company amongst its shareholders is liable to tax and, accordingly, the contention advanced on behalf of the assessee that the income on which penalty had been imposed was not even liable to tax is, therefore, rejected.
17. However, the issue that remains to be considered is as to whether there has been proper initiation of penalty proceedings in the light of the decision of the Delhi High Court in the case of Ram Commercial Enterprises Ltd. (supra). The law in regard to initiation of penalty proceedings before the completion of assessment is well settled by the decisions of the Hon'ble Supreme Court in the case of CIT v. S. V Angidi Chettiar (1962) 44 ITR 739 (SC) and in the case of D.M. Manasvi v. CIT (1972) 86 ITR 557 (SC). In the case of D.M Manasvi (supra).
Their Lordships of the Hon'ble Supreme Court held that it is the satisfaction of the Income Tax Officer in the course of assessment proceedings regarding the concealment of income which constitutes the basis and foundation of proceedings for levy of penalty. It was further stated that satisfaction in the very nature of things precedes the issue of notice and that it would not be correct to equate the satisfaction of the Income Tax Officer with the actual issue of notice.
By this decision of the Hon'ble Supreme Court, the decision of the Hon'ble Gujarat High Court in the case of D.M. Manasvi (supra) was affirmed. In that case, the assessing officer in the assessment order had mentioned as follows : "Issue notice under section 275 for the proposed penal action under section 271(1)(c) in respect of concealment or furnishing inaccurate particulars of income from M/s. Kohinoor Grain Mills Sales Depot." The Hon'ble Gujarat High Court held that the satisfaction of the assessing officer required for purposes of section 275 was recorded in the assessment order before the issue of notice and, therefore, the proceedings were validly initiated. This decision was affirmed by the Hon'ble Supreme Court. Their Lordships of the Delhi High Court in the case of Ram Commercial Enterprises Ltd. (supra) have held, on the facts of that case, that necessary satisfaction not having been recorded by the assessing officer during the course of assessment proceedings, penalty under section 271(1)(c) of the Income Tax Act in that case was not warranted. A careful reading of the aforementioned decisions leads to the following conclusions : (i) That it is mandatory for the assessing officer to record satisfaction in regard to concealment of income or/and furnishing inaccurate particulars of income during the course of assessment proceedings.
(ii) That the material on record should justify the inference that the assessing officer had recorded the satisfaction required under section 275 in the assessment proceedings.
(iii) That mere direction by the assessing officer for issue of notice under section 271(1)(c) of the Income Tax Act without there being any other material to show that satisfaction was arrived at is not sufficient to satisfy the requirement of section 275.
18. In this case the issue having been raised for the first time and the revenue not having any opportunity to produce material on the basis of which one could arrive at a conclusion one way or the other I consider it just and reasonable to remit this matter to the file of the Commissioner (Appeals) for deciding the issue as to whether the assessing officer had recorded the satisfaction in regard to concealment and/or furnishing of inaccurate particulars of income in the course of assessment proceedings. Whether the assessing officer has recorded his satisfaction or not is a question of fact to be determined on the basis of relevant material. In some cases, it may be apparent from the assessment order that the assessing officer has recorded the satisfaction about the assessee having concealed the income or/and having furnished the inaccurate particulars of such income. It may be clarified that it is not necessary that such a satisfaction is recorded in the assessment order itself. If there is any other material such as order sheet ITNS 150 etc. where the assessing officer has recorded the satisfaction, that would satisfy the conditions under section 275.
However, if no such satisfaction was recorded by the assessing officer, then penalty imposed in this case will be bad in law in ab initio. If the satisfaction is found to have been recorded by the assessing officer, then the penalty sustained by the Commissioner (Appeals) shall stand confirmed.