1. These appeals by the assessee are directed against the common order of learned CIT(A)--XXIX, New Delhi dt. 30th Oct., 2006 whereby be confirmed the following penalties imposed by the AO under Section 271(1)(c): 2. The relevant facts of the case giving rise to these appeals are that the assessee is a company incorporated in United Kingdom and is a tax resident of that country. It is mainly engaged in the airline business and has been operating in various countries including India. During the assessment years under consideration, the assessee company was carrying on its business in India through PEs in the form of its branches located in New Delhi, Mumbai, Chennai and Kolkata. The business so carried on in India comprised of (i) operation of aircraft in international traffic for transportation of passengers, goods and mail to and from India and (ii) rendering of engineering and ground handling services to aircrafts operated by other airlines. The profit derived by the assessee company from the business of operation of aircrafts in international traffic; was undisputedly not taxable in India in view of Article 8 r/w Article 7(9) of the Double Taxation Avoidance Agreement between India and United Kingdom (in short "the DTAA") which provides that such profit shall not be taxed in the source country i.e., India and the same was thus taxable only in the residence country i.e., United Kingdom in terms of Article 7(1) of DTAA. However, the profit derived from the business of provision of engineering and ground handling services to other airlines, according to the AO, was not covered within the ambit of Article 8 of DTAA and he, therefore, held that such profit was not eligible for tax exemption in India under the said article. The stand of the assessee company in this regard was that the profit so derived by it from the business of provision of engineering and ground handling services to other airlines was not taxable in India as the same was also exempt from tax under Article 8 of DTAA. The AO did not agree with this stand of the assessee company.
According to him, as the assessee company was carrying on the said business of provision of engineering and ground handling services to other airlines through its branches in India, the profit derived by it from such business had accrued and arisen in India within the meaning of Section 5(2) r/w Section 9(1) of the Act and the same, therefore, was taxable in India. He further held that the said profit was also taxable in India under the DTAA in terms of Article 7(1) thereof as the assessee company was carrying on the said business through its PEs situated in India and this profit did not enjoy tax exemption under Article 8 of the DTAA. The AO accordingly completed the assessments under Section 143(3) of the Act for all the years under consideration and brought to tax the profit derived by the assessee company from the business of rendering of engineering and ground handling services to other airlines in India during the respective years.
3. Aggrieved by the orders of the AO passed under Section 143(3), the assessee company preferred appeals before the learned CIT(A) who agreed with the view of the AO regarding taxability of the profits derived by the assessee company from the business of provision of engineering and ground handling services to other airlines in India and upheld his orders on this issue for all the assessment years under consideration.
On further appeals, the Tribunal also confirmed the chargeability of these profits to tax in India while disposing of the appeals filed by the assessee company for the asst. yrs. 1996-97, 1997-98 and 1998-99.
The appeals for the remaining three asst. yrs. 1999-2000, 2000-01 and 2001-02, however, have not been disposed of by the Tribunal and are still pending for disposal. After having upheld the chargeability of the profits derived by the assessee company from the business of provision of engineering and ground handling services to other airlines to tax in India, the Tribunal set aside and restored back the matter to the AO for all the three asst. yrs. 1996-97, 1997-98 and 1998-99 for making fresh assessments of taxable profits derived by the assessee company from the said business. In pursuance to the orders of the Tribunal, the AO determined and assessed the taxable profits derived by the assessee company from the aforesaid business at Rs. 3,36,80,703, Rs. 3,79,40,770 and Rs. 2,72,11,877 for asst. yrs. 1996-97, 1997-98 and 1998-99 respectively besides the assessments already completed assessing such income at Rs. 3,80,92,065, Rs. 5,89,23,281 and Rs. 7,84,81,918 respectively for the asst. yrs. 1999-2000, 2000-01 and 2001-2002 respectively. After considering the assessee company's submissions and the facts and circumstances of the case, the AO also held that the assessee company was liable for penalty under Section 271(1)(c) of the Act in respect of above incomes which were brought to tax on account of profits derived by the assessee company from the business of rendering the engineering and ground handling services in India to other airlines. The AO, accordingly, imposed minimum penalties of Rs. 1,85,24,386, Rs. 2,08,67,424, Rs. 1,30,61,700, Rs. 1,82,84,191, Rs. 2,82,83,175 and Rs. 3,76,71,321 for the asst. yrs. 1996-97, 1997-98, 1998-99, 1999-2000, 2000-01 and 2001-02 respectively under Section 271(1)(c) of the Act, which were equal to 100 per cent of the amount of tax sought to be evaded on the above concealed incomes.
4. The aforesaid penalties imposed by the AO under Section 271(1)(c) for all the six years under consideration were challenged by the assessee in the appeals filed before the learned CIT(A). One of the preliminary issues raised by the assessee before the learned CIT(A) while challenging the validity of penalties imposed by the AO was that the AO having failed to record any satisfaction in his orders of assessment passed under Section 143(3) about the assessee having concealed particulars of income or having furnished inaccurate particulars of income, the initiation of penalty proceedings itself was bad in law for all the six years under consideration. Insofar as penalty orders passed by the AO for asst. yrs. 1996-97, 1997-98 and 1998-99, it was pleaded on behalf of the assessee before the learned CIT(A) that the same were barred by time as specified in the provisions of Section 275(1). On merits, the penalties imposed under Section 271(1)(e) for all the six years under consideration were challenged by the assessee submitting that it was under a bona fide belief that the income derived from the business of rendering of engineering and ground handling services to other airlines was exempt under Article 8 of DTAA and that the same therefore was not taxable in India. It was also submitted that the assessee had made full and complete disclosure in respect of the said income and merely because its stand was rejected by the AO and the said income was held to be taxable in its hands in India, if could not be said that the assessee company had concealed the particulars of the said income or had furnished inaccurate particulars of such income. It was contended that the issue relating to taxability of the said income in India was a highly debatable issue and just because the claim of the assessee for exemption of income based on one of the two possible views was not accepted, no penalty under Section 271(1)(c) could be imposed.
5. After considering the submissions made on behalf of the assessee company before him as well as the material available on record, the contention of the assessee that the penalty orders passed by the AO for asst. yrs. 1996-97, 1997-98 and 1998-99 were barred by time, was rejected by the learned CIT(A) for the following reasons given in para No. 8 of his impugned order: I have carefully examined the issue and also considered the facts of the case. I have also carefully considered the submissions made by the learned Authorised Representative as well as the case laws relied upon by him. I have also perused the relevant assessment orders, appellate orders, penalty orders and other material placed on record. As regards the limitation matter, it is noticed that penalty proceedings under Section 271(1)(c) of the Act for the asst.
yrs. 1996-97, 1997-98 and 1998-99 were initiated by the AO in the assessment orders passed by him on 23rd Feb., 2004 in pursuance to the order of the Hon'ble Tribunal whereby the matter was set aside and restored back to the AO for making de novo assessment of taxable profits derived by the appellant from the business of provision of engineering and ground handling services to other airlines. The assessment orders so passed by the AO were agitated by the appellant in the appeals before the CIT(A). These appeals were disposed of by the CIT(A) by passing a consolidated order on 28th Jan., 2005. The proviso to Section 275(1)(a) of the Act provides that where the relevant assessment is the subject matter of an appeal before the CIT(A) and the CIT(A) passes the appeal order on or after 1st June, 2003, then the penally order can be passed within one year from the end of the financial year in which the order of the CIT(A) is received by the CIT. In the present case, the relevant appeal orders for the asst. yrs. 1996-97, 1997-98 and 1998-99 were passed by the CIT(A) on 28th Jan., 2005 and, therefore, assuming that such appeal orders were received by the CIT by 31st March, 2005 i.e., before the end of the same financial year 2004-05, the period of one year for passing the penalty orders as prescribed under the proviso to Section 275(1)(a) of the Act expired on 31st March, 2006. The penalty orders under Section 271(1)(c) of the Act for all the above three assessment years were passed in this case by the AO on 30th March, 2006 and the same are, therefore, found to have been passed well within the period prescribed under the proviso to Section 275(1)(a) of the Act. The contention of the appellant that the penalty orders for the asst. yrs. 1996-97, 1997-98 and 1998-99 were time-barred is, therefore, rejected.
6. As regards validity of the penalty orders passed for all the six years under consideration challenged by the assessee company on the ground that there was no satisfaction recorded by the AO in the assessment orders about concealment of particulars of its income or furnishing of inaccurate particulars of such income before initiating the penalty proceedings, the learned CIT(A) apparently did not deal with this aspect of the matter in his impugned order. On merits, he however rejected the stand of the assessee company by passing a detailed order wherein he mainly relied on Expln. 1 to Section 271(1)(c). In brief, he held that the said Explanation contains a rule of evidence regarding the burden of proof and a presumption is raised in favour of the Revenue and against the assessee that the additions or disallowances made in computing the total income shall be deemed to represent the income in respect of which particulars have been concealed by the assessee. Thereafter, the learned CIT(A) proceeded to examine the submissions made on behalf of the assessee company in the light of facts of the case including the outcome of quantum proceedings as well as the various judicial pronouncements and ultimately held on such examination that there was a failure on the part of the assessee to rebut the presumption of concealment raised against it in respect of the additions made on account of profits derived by it from the business of rendering of engineering and ground handling services in India to aircrafts operated by other airlines. He, therefore, held that Expln. 1 to Section 271(1)(c) was clearly applicable in the facts of the assessee's case and relying thereon, he confirmed the penalties imposed by the AO under Section 271(1)(c) for all the six years under consideration by his common appellate order dt. 30th Oct., 2006.
Aggrieved by the said order of the learned CIT(A), the assessee company has preferred these appeals before the Tribunal.
7. Ground No. 1 raised by the assessee, which is common in all these six appeals, is general seeking no specific decision from us.
8. In ground No. 2, which is again common in all these six appeals, the assessee company has challenged the validity of penalty orders passed by the AO under Section 271(1)(c) on the ground that there being no satisfaction recorded by the AO in the assessment orders as warranted by Section 271, the initiation of penalty proceedings itself was bad in law.
9. The learned Counsel for the assessee submitted before us that while passing the assessment orders under Section 143(3) during the course of original proceedings, no satisfaction was recorded by the AO before initiating the penalty proceedings under Section 271(1)(c) regarding concealment of particulars of its income or furnishing of inaccurate particulars of income by the assessee company. He pointed out from the relevant assessment orders that it was merely stated by the AO at the end of the said orders that penalty proceedings under Section 271(1)(c) are being initiated separately. He contended that it is a settled law that in order to levy penalty for concealment of income, the AO should reach to a satisfaction that the assessee has concealed his income or has furnished inaccurate particulars of such income and also to record such satisfaction clearly in the assessment order itself. According to him, the power to impose penalty cannot be exercised if the AO has not recorded such satisfaction during the course of assessment proceedings itself and such satisfaction must necessarily precede initiation of penalty proceedings. Relying on the decision of Hon'ble Delhi High Court in the case of CAT v. Ram Commercial Enterprises Ltd. , he contended that such satisfaction should be apparent from the assessment order and since there cannot be any presumption about such satisfaction, a mere initiation of penalty proceedings without there being any satisfaction recorded in the assessment order is bad in law. He contended that a mere initiation of the penalty proceedings by itself thus does not prove satisfaction of the AO and if is required to be recorded by him in the assessment order specifically.
10. The learned Counsel for the assessee then invited our attention to the copy of the written submissions filed before the learned CIT(A) placed at page Nos. 1-35 of his paper book to point out that this issue of non-recording of satisfaction by the AO in the assessment orders was specifically raised by the assessee before the learned CIT(A). He submitted that these submissions were duly forwarded by the learned CIT(A) to the AO calling for his comments thereon and in the remand report dt. 7th Sept., 2006 submitted by AO to the learned CIT(A) (copy at pp. 36 and 37 of the assessee's paper book), reliance was placed by the AO on the judgment of the Hon'ble Delhi High Court passed in the case of CIT v. Indus Valley Promoters Ltd. (2006) 204 CTR (Del) 149 : (2006) 155 Taxman 223 (Del) whereby the decision of Division Bench in the case of Ram Commercial Enterprises (supra) was sought to be referred to the Full Bench for reconsideration. As pointed out by the learned Counsel for the assessee, it was also submitted by the AO in the said remand report that the satisfaction as required under Section 271 was easily discernible from the assessment orders. He submitted that by the judgment passed in the case of Indus Valley Promoters Ltd. (supra), a specific issue was referred by the Hon'ble Delhi High Court to the Full Bench as to whether in the absence of the requisite satisfaction specifically recorded by the AO, the findings in the assessment order can be looked into to ascertain that the same is discernible from such findings in the assessment order or not. He contended that there was no decision rendered on merit in the case of Indus Valley Promoters Ltd. (supra) disturbing the decision rendered by the Hon'ble Delhi High Court earlier in the case of Ram Commercial Enterprises (supra). He also contended that the decision of Hon'ble Delhi High Court in the case of Ram Commercial Enterprises (supra), in any case, has now been approved by the Hon'ble Supreme Court in the case of Dilip N. Shrojf v. Jt. CIT and in the case of T. Ashok Pai v. CIT . He further contended that a mere reference to a Larger Bench does not affect the binding value of the decision of a jurisdictional High Court. He also relied on the other decisions of Hon'ble Delhi High Court in the cases of CIT v. Vikas Promoters (P) Ltd.CIT v. B.R. Sharma and CIT Globe Sales Corporation (2005) 196 CTR (Del) 187 : (2005) 145 Taxman 530 (Del) wherein the view taken in the case of Ram Commercial Enterprises (supra) was reiterated by the Hon'ble jurisdictional High Court.
11. The learned Departmental Representative, on the other hand, submitted that the appellate proceedings are continuation of assessment proceedings as field by Hon'ble Gujarat High Court in the case of CIT v. Mayur Foundation and this being so, all the appellate orders passed by the CIT(A) and the Tribunal as well as the orders passed by the AO in set aside proceedings need to be looked into to ascertain as to whether there was any satisfaction about concealment of particulars of its income by the assessee company or furnishing of inaccurate particulars of such income by it as required for initiation of penalty proceedings under Section 271(1)(c). He submitted that all these orders therefore are required to be seen to ascertain as to whether the satisfaction as required for initiation of penalty proceedings under Section 271(1)(c) was discernible or not. He then took us through the orders passed by the AO as well as by the appellate authorities in the quantum proceedings for all the six years under consideration and invited our attention to the various observations/findings recorded by the AO as well as appellate authorities in the said orders. For instance, he invited our attention to the following findings/observation recorded by the AO in the assessment originally passed for asst. yr. 1996-97: In fact, British Airways earns huge profits out of these activities and the assessee has himself offered 15 per cent profit for taxation.
In this letter the assessee did not furnish the details of engineering and traffic handling for two stations viz. Calcutta and Bombay.
The mere fact that the assessee agreed to pay the taxes shows that he accepted the taxability of the profit earned through engineering technical handling.
Throughout the proceedings, the assessee was asked to give the details of receipt and expenditure so that the correct profit may be determined.
The contention of the assessee clearly shows that he is not ready to pay the correct taxes and from the very beginning concealing his particulars of incomes. The assessee is receiving money for this activity separately through Tribunal clearance house and costs are also clearly identifiable.
The assessee himself is not furnishing the details of cost incurred and categorically denying payment of taxes on actual profit basis.
The reason is very clear that the profit is much more higher than what has been shown. It is the assessee who is relying on a ad hoc basis. It was and is never the intention of the Department to calculate any artificial profit.
12. The learned Departmental Representative also referred to observations of the JM recorded in the following paras in the common order of the Tribunal passed in the assessee's case for asst. yrs.
1996-97, 1997-98 and 1998-99: 13. The learned Departmental Representative submitted that the aforesaid observations/findings recorded by the AO as well as by the appellate authorities in the quantum proceedings were sufficient to show that the assessee had concealed the particulars of its income or had furnished inaccurate particulars of such income. He submitted that specific instances were pointed out by the AO to show that the relevant particulars were not furnished by the assessee and the same clearly represented the satisfaction as required for initiation of penalty proceedings under Section 271(1)(c).
14. Reliance was placed by the learned Departmental Representative on the decision of Kolkata Bench of Tribunal in the case of Dinbandhu Pal v. ITO to contend that the order of Tribunal was upheld by the Hon'ble Delhi I High Court in the case of Ram Commercial Enterprises (supra) holding that no question of law had arisen whereas in the case of M. Sqjjanrqj Nahar v. CAT relied upon by the Tribunal in the said decision, Hon'ble Madras High Court had decided the issue on merits. The learned Departmental Representative also strongly relied on the order of Hon'ble Delhi High Court in the case of CIT v. Indus Valley Promoters Ltd. (supra) to contend that the decision rendered by the Division Bench in the case of Ram Commercial Enterprises (supra) has now been referred to the Full Bench of Hon'ble Delhi High Court for reconsideration.
15. The learned Departmental Representative also relied on the latest unreported decision of Hon'ble Delhi High Court in the case of CIT v.Smt. Santosh Sharma rendered vide a judgment delivered on 17th Sept., 2007 in IT Appeal No. 1088 of 2006 wherein it was held by their Lordships that the observations recorded by the AO in the last part of the assessment order "penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income have separately been initiated" read with a noting made by him in the earlier portion of the assessment order about the failure on the part of the assessee to explain the source of credits in her bank account as well as her failure to adduce any evidence to support the genuineness of such credits, were sufficient to show his satisfaction as required by law for initiation of penalty proceedings. He contended that keeping in view this latest decision of the jurisdictional High Court as well as the fact that the earlier decision of Hon'ble Supreme Court in the case of CAT v. S.V. Angidi Chettiar with regard to initiation of penalty had been in the public domain and had been modulating the proceedings before the AOs, the decision of Hon'ble Delhi High Court in the case of Ram Commercial Enterprise (supra) cannot be put to retrospective application going by principle of stare decisis as explained by the Hon'ble Supreme Court in the case Union of India and Anr. v. Azadi Bachao Andolan (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC). His contention in this regard therefore was that the penalties which have been initiated prior to the pronouncement of judgment of Hon'ble Delhi High Court in the case of Ram Commercial Enterprises (supra) should be viewed in line with the law prevailing at that time as reiterated by the Hon'ble Delhi High Court in the recent judgment delivered in the case of Smt. Santosh Sharma (supra). He contended that the judgment of Hon'ble Delhi High Court in the case of Ram Commercial Enterprises (supra) may at the most be applied prospectively only in the cases wherein the penalties have been initiated after the date of pronouncement of the said judgment.
16. In the rejoinder, the learned Counsel for the assessee contended that the order passed by the Hon'ble Delhi High Court in the case of Indus Valley Promoters Ltd. (supra) relied upon by the learned Departmental Representative has not made any inroads in the decision of Division Bench of Hon'ble Delhi High Court in the case of Ram Commercial Enterprises (supra). He submitted that the decision rendered in the case of Ram Commercial Enterprises (supra) on the other hand has been approved in principle in the said order and only the mode and manner of satisfaction as required to be recorded by the AC) is left to be considered by Full Bench in the absence of specific statutory provisions in this regard. He contended that satisfaction is always subject relative. As regards the reliance sought to be placed by the learned Departmental Representative on the appellate orders as well as assessment orders passed in the set aside proceedings to ascertain the satisfaction, he submitted that the penalty proceedings were initiated by the AO in the original assessment proceedings itself as required in law and since the orders passed by him in the original proceedings were never entirely set aside by the Tribunal and there was only a limited setting aside of the said orders, the initiation of penalty proceedings in the original assessment proceedings always survived in law and the penalties finally imposed by the AO were in pursuance of the said initiation only. He contended that the satisfaction of the AO thus has to be ascertained from the assessment orders passed in the original proceedings itself and the appellate orders as well as orders passed in the set aside proceedings in the quantum proceedings are not relevant in this context. As regards the decision of Calcutta Bench of Tribunal in the case of Dinbandhu Pal v. ITO (supra) relied upon by the learned Departmental Representative, he submitted that there was a decision of Hon'ble Calcutta High Court against the assessee on the point of recording of satisfaction by the AO and the said decision of the Hon'ble jurisdictional High Court therefore was preferred by the Tribunal over the decision of Hon'ble Delhi High Court in the case of Ram Commercial Enterprises (supra). As regards the various observations/findings as recorded by the AO in the relevant assessment orders as pointed out and relied upon by the learned Departmental Representative, he submitted that the same talk about non-furnishing of the details by the assessee and there was no allegation about furnishing of inaccurate particulars by it made therein. He contended that the satisfaction of the AO in the assessment proceedings as required by Section 271 is a jurisdictional condition as held by Hon'ble Delhi High Court in the case of Ram Commercial Enterprises (supra) and such satisfaction therefore has to be seen from the assessment order so as to ascertain whether this jurisdictional condition is satisfied or not-According to him, the subsequent events are therefore irrelevant in this context and what is to be seen is only the relevant assessment orders to decide this matter. He also relied on the decision of Hon'ble Delhi High Court in the case of CIT v. Globe Sales Corporation (supra) and pointed out that the exact requirement of recording satisfaction in the assessment order by the AO as contemplated in Section 271(1)(c) has been explained by their Lordships in the said decision. He also explained the text and context of the various observations/findings recorded by the AO in the assessment orders, which have been relied upon by the learned Departmental Representative, in an attempt to point out that there was no allegation made therein by the AO about concealment of particulars of its income by the assessee company or furnishing of inaccurate particulars of income by if as envisaged in Section 271(1)(c). He contended that the satisfaction of the AO in this regard thus is not discernible even from the said observations/findings recorded by the AO in the assessment order.
17. We have considered the rival submissions in the light of material available on record and the various judicial pronouncements cited by learned representatives of both the sides. The penalties imposed under Section 271(1)(c) by the AO and confirmed by the learned CIT(A) have been challenged by the assessee in the present appeals, inter alia, on the preliminary ground that the requisite satisfaction as regards the assessee having concealed the particulars of his income or having furnished inaccurate particulars of such income was not recorded by the AO in the assessment orders originally passed under Section 143(3) and in the absence of such satisfaction recorded by him, the initiation of penalty proceedings for all the six years under consideration itself was bad in law. In support of this contention, reliance has been placed before us by the learned Counsel for the assessee inter alia on various decisions of Hon'ble Delhi High Court. In one of such decisions rendered in the case of CIT v. Ram Commercial Enterprises Ltd. (supra), it was held by the Hon'ble Delhi High Court that the assessing authority has to form its own opinion and record its satisfaction before initiating the penalty proceedings and it cannot be assumed that such a satisfaction was arrived at merely because the penalty proceedings had been initiated. The satisfaction is to be arrived in the course of any proceedings under the Act which would mean assessment proceedings and the satisfaction as envisaged by the Hon'ble Delhi High Court in the case of Ram Commercial Enterprises Ltd. (supra) thus has to be reached during the course of assessment proceedings by the AO and the same has to be recorded by him in the assessment order. In the case of Diwan Enterprises v. CIT , it was found that the AO had nowhere recorded his satisfaction till the conclusion of assessment proceedings that assessee had concealed income and this failure on the part of the AO was held to be jurisdictional defect by the Hon'ble Delhi High Court in the matter of imposition of penalty under Section 271(1)(c). Following the said decision, it was again reiterated by the Hon'ble Delhi High Court in the case of Bhagwant Finance Co. Ltd. v.CIT (2005) 196 CTR (Del) 462 that satisfaction of the AO is a condition precedent to initiation of penalty proceedings under Section 271(1)(c) and as such penalty proceedings initiated as a coercive measure to recover the revenue without arriving at subjective satisfaction that the assessee has concealed the particulars of income or furnished inaccurate particulars were not sustainable. This issue again came for consideration before the Hon'ble Delhi High Court in the case of CIT v.B.R. Sharma (supra) wherein it was held that AO is under an obligation to record satisfaction prior to the initiation of penalty proceedings under Section 271(1)(c) and therefore the order of the Tribunal invalidating the penalty proceedings which were initiated without recording requisite satisfaction was correct and did not raise any substantial question of law.
18. Before us, the learned Departmental Representative at the outset has submitted that even though a view was taken by the Hon'ble Delhi High Court earlier in the decisions rendered in many cases that in the absence of requisite satisfaction recorded by the AO in the assessment order, the initiation of penalty proceedings was not valid, this issue subsequently has been referred to the Full Bench of Hon'ble Delhi High Court in the case of Indus Valley (supra) and the matter is now pending before the Full Bench of Hon'ble jurisdictional High Court for hearing and disposal. However, as pointed out by the learned Counsel for the assessee from the judgment passed in the said case by the Hon'ble Delhi High Court while referring the matter to a Full Bench, the following question has been sought to be referred to the Full Bench: Whether satisfaction of the officer initiating the proceedings under Section 271 of the IT Act can be said to have been recorded even in cases where satisfaction is not recorded in specific terms but is otherwise discernible from the order passed by the authority 19. As is evident from the aforesaid question sought to be referred to the Full Bench, the issue regarding requirement of recording the satisfaction for initiating the penalty proceedings under Section 271(1)(c), which has already been concluded by a series of judgments of the Hon'ble Delhi High Court, has not been referred to the Full Bench for reconsideration and what has been actually referred to the Special Bench and which is pending for disposal is only the issue relating to the manner and method of recording such satisfaction in the absence of any specific provisions contained in the statute in this regard. The issue referred to the Full Bench of Hon'ble Delhi High Court thus is incidental to the main issue of satisfaction inasmuch as after having held that there is a mandatory requirement of recording the satisfaction by the AO before initiating the penalty proceedings under Section 271(1)(c), the consequential issue which arises is whether such satisfaction has to be recorded in so many words or in the absence of any manner or method prescribed in the statute for recording such satisfaction, would it be sufficient, if the same is otherwise discernible from the order passed by the authority in a case where such satisfaction is not recorded in specific terms. It therefore cannot be said that the issue as decided by the Hon'ble Delhi High Court in the series of judgments rendered in several cases about the jurisdictional condition of recording the satisfaction before initiating the penalty proceeding is now pending before the Full Bench of Hon'ble Delhi High Court for reconsideration. In our opinion, the scope of question referred to the Full Bench is entirely different and the issue about statutory requirement of satisfaction already decided in several cases by the Division Benches of Hon'ble Delhi High Court is not pending for reconsideration before the Full Bench as sought to be contended by the learned Departmental Representative relying on the judgment passed by the Hon'ble Delhi High Court in the case of Indus Valley (supra).
Moreover, as rightly submitted by the learned Counsel for the assessee, making of a reference to the Full Bench does not alter the proposition already pronounced by the Division Bench of the High Court and unless and until the same is disturbed by overruling the decision of Division Bench, the decision rendered by the Division Bench remains the law laid down by the High Court which has to be followed by the subordinate authorities as a binding precedent.
20. As pointed out by the learned representatives of both the sides before us, the Division Benches of the jurisdictional High Court meanwhile have gone ahead and decided few cases by ascertaining as to whether such satisfaction is discernible from the assessment order or not. In some of the cases so decided, their Lordships have come to the conclusion on the basis of facts of each case that, the requisite satisfaction was not discernible and accordingly held the initiation of penalty proceedings, itself to be invalid. On the other hand, where it was found by them on appreciation of facts of the case before them that such satisfaction was discernible, the validity of initiation of penalty proceedings has been upheld. In one of such case i.e., CIT v.Smt Santosh Sharma decided by Hon'ble Delhi High Court vide a judgment delivered on 17th Sept., 2007 in IT Appeal No. 1088 of 2006, it has been held by their Lordships that the observations recorded by the AO in the last part of the assessment order i.e., "penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income have separately been initiated" read with a noting made by him in the earlier portion of the assessment order about the failure on the part of the assessee to explain the source of credits in her bank account as well as her failure to adduce any evidence to support the genuineness of such credits were sufficient to show his satisfaction as required by law for initiation of penalty proceedings. The learned Departmental Representative has strongly relied on this latest decision of Hon'ble Delhi High Court to contend that if the satisfaction is discernible from the orders passed in proceedings, there is a compliance of the statutory requirement as well as satisfaction of jurisdictional condition and the initiation of penalty proceedings is valid in the eyes of law. He has also contended that the appellate proceedings are continuation of the assessment proceedings and therefore the orders passed by the appellate authorities in the quantum proceedings as well as the orders passed by the AO in the set aside proceedings as per the directions of the appellate authorities are required to be looked into so as to find out as to whether the requisite satisfaction for initiation of penalty proceedings was there or not.
21. As regards the contention of the learned Departmental Representative that the orders passed by the appellate authorities in the quantum proceedings as well as orders passed by the AO in the set aside proceedings as per the directions of the appellate authorities are to be looked into along with the assessment order passed originally to find out or ascertain the satisfaction required for initiation of penalty proceedings, it is observed that a somewhat similar issue had come up for consideration before the Hon'ble Calcutta High Court in the case of CAT v. Ananda Bazar Patrika (P) Ltd. wherein it was held that it is not open to the AO to treat an appeal proceedings as an extension of assessment proceedings so as to enable him to find a case for penalty after he signs the assessment order.
Moreover, as held by Hon'ble Delhi High Court in the case of CIT v.B.R. Sharma (supra), the AO is under an obligation to record satisfaction prior to the initiation of penalty proceedings under Section 271(1)(c) and such satisfaction thus in the very nature of things has to precede the initiation of penalty proceedings as well as the issue of notice. The initiation of penalty proceedings as well as issue of notice initiating the penalty proceedings is thus a consequence of the satisfaction of the AO. The requisite satisfaction thus is required to be derived by the AO during the course of original assessment proceedings itself wherein the penalty proceedings are initiated by him and the events occurring subsequent to the initiation of penalty proceedings such as the appellate orders passed in the quantum proceedings are not relevant in this context and cannot be looked into or relied upon to ascertain the satisfaction of the AO as sought to be contended by the learned Departmental Representative. As regards his reliance on the assessments framed in the set aside proceedings to ascertain the satisfaction of AO for initiation of penalty proceedings, it is observed that a similar issue had come up for consideration before the Hon'ble Punjab & Haryana High Court in the case of Bhagwan Dass Vijay Kumar v. CAT wherein it was held that the levy of penalty based on an assessment order passed in the set aside proceedings is also valid but only in a case where the original assessment had been set aside and penalty proceedings dropped consequent thereon. It was also held by the Hon'ble Punjab & Haryana High Court that there could be fresh penalty proceedings initiated on completion of the fresh assessment. In the present case, the orders originally passed by the AO for asst. yrs. 1996-97, 1997-98 and 1998-99 had not been entirely set aside by the Tribunal but it was a case of partial set aside inasmuch as the order of the AO on the issue in dispute was upheld by the Tribunal in principal and only the matter of quantification of income was set aside by it to the AO for deciding the same afresh. The orders passed by the AO originally thus were not completely set aside by the Tribunal nor the penalty proceedings initiated during the course of original assessment proceedings were dropped as a consequence of the Tribunal's order. The penalty proceedings initiated in the original assessment proceedings thus had never been dropped and the same not only survived throughout but even the penalties were finally imposed in pursuance of the said initiation.
It is no doubt true that in the assessment orders passed in the set aside proceedings, there was an observation recorded by the AO to the effect that penalty proceedings under Section 271(1)(c) arc being initiated. However, as the assessment orders passed by the AO in the original assessment proceedings had not been entirely set aside by the Tribunal and it was only a case of limited/partial set aside, the penalty proceedings initiated in the said original assessment proceedings continued to survive and the same were never dropped either by any order passed by the AO explicitly or even by implication. We, therefore, find it difficult to agree with the contention of the learned Departmental Representative that orders passed by the appellate authorities in the quantum proceedings as well as the assessments framed in the set aside proceedings as per the direction of the appellate authority are required to be looked into to ascertain or find out the satisfaction of the AO required for initiation of penalty proceedings. In our opinion, only the original assessment proceedings are relevant to ascertain the satisfaction of the AO and the order passed by him in the said proceedings alone can be looked into to find out or ascertain as to whether there was such satisfaction and the same indeed was recorded by him.
22. As regards the contention of the learned Departmental Representative that keeping in view the latest decision of Hon'ble Delhi High Court in the case of Smt. Santosh Sharma (supra) as well as the decision of Hon'ble Supreme Court in the case of S.V. Angidi Chettiar (supra), the ratio of the decision of Ilon'ble Delhi High Court in the case of Ram Commercial Enterprises (supra) can be applied only prospectively going by the principle of stare decisis, we find that the same cannot be of any help to the Revenue in the present case since the assessment orders for all the years under consideration initiating the penalty proceedings were passed by the AO only after 8th Oct., 1998, the date on which the judgment in the case of Ram Commercial Enterprises Ltd. (supra) came to be delivered by the Hon'ble Delhi High Court. Even on merits, we find it difficult to accept the said contention raised by the learned Departmental Representative.
First of all, his reliance on the decision of Hon'ble Supreme Court in the case of Azadi Bachao Aandolan (supra) for applying the said principle in the present context is clearly misplaced because the principle of stare decisis was applied by the Hon'ble Supreme Court in the said case in entirely different context as is evident from the observations recorded by Hon'ble apex Court in para Nos. 28 and 29 of their judgment : 28. The learned Attorney General justifiably relied on the observations of this Court in Mishri Lal v. Dhirendra Nath (Dead) by LRs. and Ors. (1999) 4 SCC 11, paras 14 to 22 in which this Court referred to its earlier decision in Muktul v. Manbhari (1959) SCR 1099 on the scope of the doctrine of stare decisis with reference to Halsbury's Law of England and Corpus Juris Secundum, pointing out that a decision which has been followed for a long period of time, and has been acted upon by persons in the formation of contracts or in the disposition of their property, or in the general conduct of affairs, or in legal procedure or in other ways, will generally be followed by Courts of higher authority other than the Court establishing the rule, even though the Court before whom the matter arises afterwards might be of a different view. The learned Attorney General contended that the interpretation given to Section 90 of the IT Act, a Central Act, by several High Courts without dissent has been universally followed; several transactions have been entered into based upon the said exposition of the law; that several tax treaties have been entered into with different foreign Governments based upon this law, hence, the doctrine of stare decisis should apply or else it will result in chaos and open up a Pandora's box of uncertainty.
29. We think that this submission is sound and needs to be accepted.
It is not possible for us to say that the judgments of the different High Courts noticed have been wrongly decided by reason of the arguments presented by the respondents. As observed in Mishri Lal (supra) even if the High Courts have consistently taken an erroneous view, (though we do not say that the view is erroneous) it would be worthwhile to let the matter rest, since large numbers of parties have modulated their legal relationship based on this settled position of law.
23. As explained by Hon'ble Allahabad High Court in the case of British Indian Corporation Ltd. v. CAT , the decision of Hon'ble Delhi High Court on a reference in one year will be binding on the Tribunal when the same question arises in a subsequent year on the ground of stare decisis. However, where the earlier decision stood overruled by the Hon'ble Supreme Court, the applicability of the principle of stare decisis was also excluded. In the decision of Hon'ble Delhi High Court rendered subsequently in the case of Smt.
Santosh Sharma (supra) relied upon by the learned Departmental Representative, it was clearly noticed by their Lordships in para No. 6 of their judgment that the view expressed by the Court in Ram Commercial Enterprises Ltd. (supra) that the failure on the part of the AO to record his satisfaction in the assessment order vitiates the penalty proceedings has been approved by the Hon'ble Supreme Court in the case of Dilip N. Shroff v. Jt. CIT (supra) and in the case of T.Ashok Pai v. CIT (supra). This being so, it cannot be said that the proposition propounded by Hon'ble Delhi High Court in the case of Ram Commercial Enterprises Ltd. (supra) can be applied only prospectively.
On the other hand, the view expressed by Hon'ble Delhi High Court in the said case having been approved by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) and T. Ashok Pai (supra), the same has become a law of land as declared by the Hon'ble Supreme Court which was always in existence.
24. As already noted by us, Hon'ble Delhi High Court has already decided many cases involving a similar issue about satisfaction after ascertaining from the findings/observations recorded by the AO in the relevant assessment orders as to whether such satisfaction was discernible or not depending on facts of each case. As observed by the Hon'ble Delhi High Court in the case of Indus Valley Promoters Ltd. (supra), it would depend on the facts and circumstances of each case whether or not the authority has applied its mind to the question of concealment of income or furnishing of inaccurate particulars of such income, it was also held by their Lordships that whether the authority was or was not satisfied about any such concealment or furnishing of inaccurate particulars will also depend upon the facts of each case and the order which the authority has made. The issue as to whether the requisite satisfaction for initiation of penalty proceedings is discernible from the findings/observations recorded by the AO in the assessment order thus is basically a question of fact which is required to be decided on the facts and circumstances involved in each case. In the case of Smt. Santosh Sharma (supra) cited by the learned Departmental Representative, it was held by the Hon'ble Delhi High Court having regard to the relevant observations/findings recorded by the AO in the assessment order that the requisite satisfaction as required for initiation of penalty proceedings was discernible from the said order and this issue in our opinion, needs to be considered and decided in each case independently depending on facts and circumstances involved in the said case. Our view gets support from the fact that in the case of Diwan Enterprises v. CIT (supra), there was a noting made by the AO in the assessment order to the effect that "penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income have been initiated separately" and despite such a noting made by the AO which was similar to the noting made in the case of Smt. Santosh Sharma, it was held by the Hon'ble Delhi High Court having regard to the facts and circumstances involved in the case of Diwan Enterprises (supra) that the AO had nowhere recorded till the conclusion of the assessment proceedings his satisfaction about the assessee having concealed the particulars of his income or having furnished inaccurate particulars of such income. It was also held by the Hon'ble Delhi High Court that there was thus a jurisdictional defect which could not be cured and the initiation of penalty proceedings was itself bad.
25. As regards the decision of Kolkata Bench of Tribunal in the case of Dinbandhu Pal v. ITO (supra) relied upon by the learned Departmental Representative, it is observed that the decision of Hon'ble Delhi High Court in the case of Ram Commercial Enterprises Ltd. (supra), no doubt, was not followed by the Tribunal in the said case. However, the same was apparently done by the Tribunal because of the decision of Hon'ble Calcutta High Court in the case of Becker Gray and Co. (1930) Ltd. v.ITO holding that even though it was incumbent on the AO to at least have a prima facie satisfaction about the condition specified in Section 271(1)(c) before the issuance of penalty notice, he was not required to record such satisfaction in writing in every case. Since this decision of Hon'ble jurisdictional High Court was binding on the Kolkata Bench of Tribunal, the same was preferred by the Tribunal over the decision of Hon'ble Delhi High Court in the case of Ram Commercial Enterprises Ltd. (supra). The present case of the assessee, on the other hand, is lying under the jurisdiction of Hon'ble Delhi High Court and we are therefore bound to follow the decisions rendered by the Hon'ble Delhi High Court as a binding precedent.
26. Having held that only the original assessment proceedings are relevant to ascertain the requisite satisfaction of the AO and the order passed by him in the said proceedings alone can be looked into to find out or ascertain as to whether there was such satisfaction recorded by him, it is pertinent to consider and decide as to whether such satisfaction was indeed recorded by the AO in the assessment orders passed for the years under consideration during the course of original assessment proceedings before initiating penalty proceedings.
In this regard, it is observed that the following notings were made by the AO in the said orders: Penalty proceeding under Section 271(1)(c) of the IT Act is initiated separately.
Initiate proceedings under Section 271(1)(c) of the IT Act 1961 for willful concealment of income to evade lawful tax liability and furnishing inaccurate particulars.
Initiate penalty proceedings under Section 271(1)(c) for willful concealment of income and furnishing inaccurate particulars of income.
Initiate penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income/concealment of income.
27. During the course of hearing the learned Departmental Representative has also invited our attention to certain findings/observations recorded by the AO in the order of assessment passed originally for asst. yr. 1996-97 which have been already reproduced by us in para No. 11 of this order. He has contended that similar findings/observations have been recorded by the AO even in the assessment orders passed for the remaining five years and the same read with the aforesaid notings made at the conclusion of the assessment orders are sufficient to show the satisfaction of the AO as required to be recorded for initiation of penalty proceedings under Section 271(1)(c). This issue therefore needs to be considered in the light of various decisions of the Hon'ble Delhi High Court Which are directly applicable in the present context so as to decide as to whether the satisfaction as required for initiation of penalty proceedings indeed was recorded by the AO in the relevant assessment orders.
28. As already noted, the issue of recording of satisfaction by the AO in the context of initiation of penalty proceedings came for consideration before the Hon'ble Delhi High Court in the case of CIT v.Ram Commercial Enterprises Ltd. (supra) wherein it was held by their Lordships that a bare reading of the provisions of Section 271 and the law laid down by the Hon'ble Supreme Court inter alia in the case of D.M. Manasvi v. CIT makes it clear that it is the assessing authority which has to form its own opinion and record its satisfaction before initiating the penalty proceedings. Explaining further, it was observed by the Hon'ble Delhi High Court that merely because the penalty proceedings have been initiated, it cannot be assumed that such a satisfaction was arrived at in the absence of the same being spelt out by the order of the assessing authority. A similar issue again came before the Hon'ble Delhi High Court in the case of Diwan Enterprises (supra) wherein it was noted by the AO in the concluding portion of his assessment order that "penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income have been initiated separately" and despite such a noting, it was held by the Hon'ble Delhi High Court following the decision rendered in the case of Ram Commercial Enterprises (supra) that the AO had nowhere recorded till the conclusion of the assessment proceedings his satisfaction about the assessee having concealed the particulars of his income or having furnished inaccurate particulars of such income. It was also held by their Lordships that there was thus a jurisdictional defect in initiating the penalty proceedings which could not be cured and consequently all the subsequent proceedings leading upto the passing of the penalty order must fail. To the similar effect is the decision of Hon'ble Delhi High Court in the case of Shri Bhagwant Finance Company Ltd. v. CIT (supra) wherein it was held that established cannons of law impose a duty upon the concerned authorities of apply their mind, record satisfaction and then alone initiate penalty proceedings in conformity with the provisions of Section 271.
This issue again came up before the Hon'ble Delhi High Court for consideration in the case of CIT v. Globe Sales Corporation (supra) wherein the exact requirement of law in the matter of recording satisfaction before initiating penalty proceedings was explained by their Lordships stating that a bare reading of the provisions of Section 271(1) which vest the authorities concerned with the power to impose penalty, clearly postulates that an officer has to record his satisfaction in terms of the section that it was a fit case for initiation of a penalty proceeding. It was also held by the Hon'ble Delhi High Court that the use of expression "may" clearly shows that penalty is not an automatic consequence of concealment of income or furnishing inaccurate particulars thereof. Wide discretion has been given to the AO and other authorities to apply their mind and come to a conclusion in the light of the statutory provisions as to whether they would or would not like to initiate the penalty proceedings keeping in view the facts and circumstances of the case. It was further held that the cumulative reading of the provisions leaves no doubt that the discretion to be exercised by the officer has to be for valid and proper reasons which are in consonance with the spirit of Section 271(1). In the assessment order passed in the said case, not even a single reason had been recorded by the AO as to why, in his opinion, it was just and proper to initiate penalty proceedings and in the absence of the same, it was held by the Hon'ble Delhi High Court that the requisite satisfaction for initiation of penalty proceedings was not recorded by the AO and in the absence of the same, the initiation of penalty proceedings itself was bad in law.
29. In our opinion, if the proposition propounded by the Hon'ble Delhi High Court in their various decisions discussed above in the matter of satisfaction required to be recorded by the AO before validly initiating the , penalty proceedings is applied to the facts of the present case, the findings/observations recorded by the AO in the assessment orders passed originally as pointed out and relied upon by the learned Departmental Representative cannot be said to be sufficient compliance of the statutory requirement and the requisite satisfaction cannot be said to be spelt out by the AO in the said orders on the basis of the said findings/observations. A perusal of the said orders shows that there is no reason whatsoever given by the AO in the said orders to show as to why, in his opinion, it was just and proper to initiate penalty proceedings or at least to show as to why he was satisfied that the assessee had concealed the particulars of his income or had furnished inaccurate particulars of such income. Having regard to all these facts of the case as well as keeping in view the legal position emanating from the various judicial pronouncements of Hon'ble Delhi High Court discussed hereinabove, we are therefore of the view that the requisite satisfaction about the assessee having concealed the particulars of his income or having furnished inaccurate particulars of such income was not recorded by the AO in the t relevant assessment orders before initiating the penalty proceedings under Section 271(1)(c) and in the absence thereof, the initiation of penalty proceedings itself was bad in law and consequently the penalties imposed by him in pursuance of the said initiation are liable to be cancelled. In that view of the matter, we set aside the impugned order of the learned CIT(A) confirming the penalties imposed by the AO under Section 271(1)(c) for all the six years under consideration and cancel the penalties so imposed.
30. In the other grounds raised by the assessee in these appeals, the penalties imposed under Section 271(1)(c) have been challenged inter alia on merits also and although elaborate arguments have been advanced by both the sides on the issues raiser! in the said grounds, the said issues have been rendered merely of academic nature as a result of our decision on preliminary issue rendered hereinabove. We, therefore, do not deem it necessary or expedient to adjudicate upon the said grounds.
31. Before we part with this order, we may deal with an objection raised initially by the learned Departmental Representative. According to him, the appeals filed by the assessee in the quantum proceedings for all the six years under consideration are still pending before the Tribunal and therefore the present appeals filed in the penalty proceedings should be taken up for hearing and disposal only after the disposal of the said appeals filed in the quantum proceedings. In our opinion, this undoubtedly is a proper course which has to be ordinarily followed in the normal circumstances. In the present case, the facts and circumstances however are different inasmuch as the main issue involved in all the six years under consideration is the same and since the said issue in principle has already been decided by the Tribunal in quantum proceedings at least for three years i.e., asst. yrs. 1996-97, 1997-98 and 11998-99 restoring the matter to the file of the AO for the limited purpose of quantification of income of the assessee and the facts involved in the remaining three years are similar, we decided that these penalty appeals could be disposed of even without waiting for the disposal of corresponding appeals filed by the assessee in the quantum proceedings which are pending before the Tribunal.
In the result, all the appeals of the assessee are allowed as indicated above.