1. By this order, we shall dispose of this appeal of the assessee filed against the order of the CIT(A), Jammu with Headquarters at Amritsar for the asst. yr. 2001-02.
2. The only effective issue raised in this appeal is that the learned CIT(A) was not justified in sustaining the penalty imposed by the AO under Section 271(1)(c) by ignoring the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Munish Iron Store (2004) 186 CTR (P&H) 159 : (2003) 263 1TR 484 (P&H) and the decision of Tribunal (SMC), Amritsar Bench, in the case of Shri Joginder Pal, Prop. M/s New Radha Industries v. ITO. Ward-1, Hoshiarpur, for the asst. yr. 1993-94 (a copy of order placed at pp. 23 to 28 of the paper book). The facts of the case are that the assessee had filed return declaring therein income of Rs. 8,83,984 on 3rd July, 2001, which was processed under Section 143(1). In the return the assessee had included the value of Rs. 5,68,000 of the Opel Corsa car won by him in the contest as income.
Subsequently, however, the assessee filed a revised return declaring total income of Rs. 3,25,954 on 30th Aug., 2001, where the assessee had claimed exemption of Rs. 5,68,000 being value of Opel Corsa car won by him as prize money in the contest of coining slogans for M/s Compact Computers India Limited, Bangalore, under Section 2(24)(ix) of the IT Act, 1961 (in short, 'the Act'). The assessee also relied on the decision of Tribunal, Hyderabad Bench in the case of ITO v. Smt Shukba Mukherjee (1987) 21 1TD 482 (Hyd) in support of his contention that the prize money won in the slogan contest did not fall in the category of income mentioned under Section 2(24)(ix) of the Act. Reliance was also placed on the judgment of Hon'ble Madras High Court in the case of CIT v. G.R. Karthikeyan . However, the AO observed that the judgment of Hon'ble Madras High Court was reversed by the Hon'ble Supreme Court in the case of CIT v. G.R. Karthikeyan , where it was held that such income was taxable under the head 'Income from other sources'. The AO, therefore, completed the assessment under Section 143(3) on 9th June, 2003 by making an addition of Rs. 5,68,000.
The AO also initiated the penalty proceedings by issue of notice under Section 271(1)(c) by recording the following towards the end of the assessment order below the computation of income: In response to the show-cause notice, the assessee submitted a detailed reply vide letter dt. 24th Feb., 2006 stating therein that the AO has not recorded proper satisfaction at the time of initiating the proceedings. Therefore, relying on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Munish Iron Store (supra), two judgments of Hon'ble Delhi High Court in the cases of CIT v. Ram Commercial Enterprises Ltd. and Diwan Enterprises v.CIT it was contended that no order for imposing penalty can be passed in the absence of recording of valid satisfaction at the time of initiating the penalty proceedings. However, the AO observed that the judgment of the Hon'ble Punjab & Haryana High Court was not applicable because in that case, the assessee had filed the revised return to declare and pay tax on that part of income which had not been earlier declared in the original return of income whereas in the present case, the assessee had first declared such income in the original return and paid the tax thereon and later on the assessee had revised the return by excluding the taxable income. As regards the merits of the case, the assessee had contended that since the addition has been made on the basis of mere difference of opinion, no penalty under Section 271(1)(c) was exigible. Reliance was also placed on the three judgments of Hon'ble Punjab & Haryana High Court in the cases of Ganesh Textiles v. CIT This submission of the assessee did not find favour with the AO who observed that there was no difference of opinion with regard to the taxability of the receipt at any point of time by the Department. Thus, the AO held that the assessee has intentionally tried to evade the tax payable by him. The AO, therefore, imposed a penalty of Rs. 3,98,736 i.e., @ 200 per cent of the tax sought to be evaded in respect of an addition of Rs. 5.68 lacs though the minimum leviable was at Rs. 1,99,368.
3. Being aggrieved, the assessee filed an appeal before the CIT(A). The submissions made before the AO were reiterated. It was argued that recording of satisfaction at the time of initiation of penalty proceedings was mandatory requirement of law. Failure to do so vitiates the order for imposing penalty. Reliance was placed on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Munish Iron Store (supra) and the decision of Tribunal (SMC) Amritsar Bench, in the case of Sh. Joginder Pal, Prop. M/s New Radha Industries v. ITO (supra), in ITA No. 280/Asr/2002 for the asst. yr. 1993-94. The learned CIT(A) observed that the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Munish Iron Store (supra) was not applicable to the facts of the present case because in that case, the AO had quietly accepted the revised return and not a word has been written about the concealment of income whereas in the present case the only addition has been made and the penalty proceedings have been duly initiated by the AO. He also observed that the decision of Tribunal, Amritsar Bench in the case of Sh. Joginder Pal, Prop. New Radha Industries v. ITO (supra) was not applicable because in that case the Tribunal has placed reliance on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Munish Iron Store (supra) which has not been found applicable to the facts of the present case.
Thus, he upheld the penalty imposed by the AO. However, he reduced the amount of penalty from 200 per cent to 100 per cent of the tax sought to be evaded. The relevant findings recorded by the CIT(A) in the impugned order are as under: 4. I have duly considered the submission of the learned counsel of the appellant. The submissions made and the case law quoted by the learned counsel for the appellant are same as were filed before the AO during the course of penalty proceedings. The AO has properly dealt with the submission of the appellant in the impugned penalty order passed by him.
4.1. The reliance placed by the learned counsel for the appellant on the case of Munish Iron Store (supra) is completely misplaced because the facts of the present case are totally different from the facts of the case of Munish Iron Store (supra). In the case of Munish Iron Store (supra), the AO had quietly accepted the revised return and not a word had been written about concealment of income, whereas, in the present case only one addition has been made and penalty proceedings have been duly initiated by the AO. Obviously, the penalty has been initiated on this very issue, which was the subject-matter of addition. Moreover, the Hon'ble Punjab & Haryana High Court had dismissed the appeal of the Department on the ground that the order passed by Hon'ble Punjab & Haryana High Court had dismissed the appeal of the Department on the ground that the order passed by Hon'ble Tribunal did not give rise to any question of law, much less a substantial question of law.
4.2. The other judgment quoted by the learned counsel for the appellant is of Hon'ble Tribunal, Amritsar (supra). In this judgment, the Hon'ble Tribunal, Amritsar has mainly relied upon the decision of Hon'ble Punjab & Haryana in the case of Munish Iron Store (supra) and it has already been discussed in para 4.1 (supra) that facts in the case of Munish Iron Store (supra) were entirely different and the Hon'ble High Court had merely said that the ground of appeal raised by the Department did not give rise to a question of law.
4.3 Coming to the facts of the case, it is seen that the appellant had declared the value of car in the original return but subsequently filed a revised return by relying on the judgment of Hon'ble Madras High Court cited supra which had already been overruled by Hon'ble Supreme Court. Not only this, the appellant filed application under Section 144A before the Addl. CIT against the proposed addition. The Addl. CIT did not agree with the contention of the appellant and directed the AO to make the impugned addition. The appellant field appeal before learned CIT(A) also, but could not succeed. Hence, the overall conduct of the appellant despite the ruling of Hon'ble Supreme Court in the case of CIT v. G.R. Karthikeyan was to evade tax on the value of Opel Corsa car. Hence, the penalty under Section 271(1)(c) has been rightly imposed. However, keeping in view the facts and circumstances of the case, it was not warranted to imposed penalty @ 200 per cent of tax sought to be evaded, which is reduced to 100 per cent of tax sought to be evaded. Accordingly, penalty imposed is reduced to 1,99,368 and appellant gets relief of Rs. 1,99,368.
The assessee is aggrieved with the order of the C1T(A). Hence, this appeal before this Bench.
4. The learned counsel for the assessee, Sh. R.C. Khanna, reiterated the submissions, which were made before the authorities below. He submitted that the assessee had filed the return of income with detailed notes (a copy placed at pp. 1 to 4 of the paper book), where the value of Opel Corsa car at Rs. 5,68,000 won by him as prize money in the contest of coining slogans for M/s Compact Computers India Ltd., Bangalore, was included. However, subsequently, the assessee field a revised return on 30th Aug., 2001 claiming exemption of the value of Opel Corsa car by relying on the decision of Tribunal, Hyderabad Bench in the case of ITO v. Smt. Shukba Mukherjee (supra) and the judgment of Hon'ble Madras High Court in the case of CIT v. G.R. Karthikeyan (supra). He submitted that at the time of completing the assessment, the AO initiated penalty proceedings by simply recording at the end that "Penalty notice under Section 271(1)(c) is issued." The AO has not pointed out whether the assessee had concealed the particulars of income or furnished inaccurate particulars of income. Moreover, there is absolutely no discussion in the assessment order about any mala fide intent on the part of the assessee so as to justify initiation of penalty proceedings under Section 271(1)(c) of the Act. Thus, during the course of penalty proceedings, it was submitted that penalty could not be imposed by the AO for want of proper satisfaction recorded in the assessment order. Reliance was also placed on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Munish Iron Store (supra) and the decision of Tribunal (SMC) Amritsar Bench, in the case of Sh. Joginder Pal, Prop. M/s New Radha Industries v. ITO (supra). He submitted that the AO rejected these submissions merely by saying that the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Munish Iron Store (supra) was not applicable to the facts of the present case. He stated that the assessee filed an appeal before the CIT(A), where similar submissions were made. The learned CIT(A) has summarily held that the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Munish Iron Store (supra) is not applicable to the facts of the present case. Similarly, the decision of Tribunal (SMC) Amritsar Bench, in the case of Sh. Joginder Pal, Prop.
M/s New Radha Industries, v. ITO (supra) is again not applicable. He submitted that no valid reasons have been given by the CIT(A) as to why these judgments are not applicable. Thus, he submitted that the order passed by the CIT(A) deserves to be quashed and since the assessee has been subjected to undue harassment he may be awarded costs. As regards the merits, the learned counsel relied on the recent judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Balbir Singh (2008) 214 CTR (P&H) 147 : (2007) 164 Taxman 65 (P&H) (a copy or order placed before this Bench) to support his contention that addition made on bona fide difference of opinion did not warrant levy of penalty under Section 271(1)(c) of the Act.
5. The learned Departmental Representative, on the other hand, heavily relied on the orders of the authorities below and submitted that the learned CIT(A) has already given reasons as to why the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Munish Iron Store (supra) is not applicable. Therefore, such order deserves to be upheld.6. We have heard both the parties and carefully considered the rival submissions, examined the facts, evidence and material placed on record. We have also gone through the orders of the authorities below.
The assessee has taken a specific ground before the authorities below that the order for imposing penalty under Section 271(1)(c) was illegal and bad in law because of failure on the part of the AO to record proper satisfaction in the assessment order at the time of initiating the penalty proceedings. Reliance was placed on the judgment of Hon'ble jurisdictional High Court of Punjab & Haryana in the case of CIT v.Munish Iron Store (supra) and the decision of Tribunal (SMC), Amritsar Bench, in the case of Sh. Joginder Pal Prop. M/s New Radha Industries v. ITO (supra). This submission has not found favour with the authorities below perhaps for the reason that they are not clear in their mind about the meaning of recording of proper satisfaction in the assessment order at the time of initiation of proceedings under Section 271(1)(c). Provisions of Section 271(1) provide for initiation of penalty proceedings inter alia under Section 271(1)(c). Sub-section (1) of Section 271 r/w Clause (c) of the said section provide that if the AO or the CIT(A) or the CIT in the course of any proceedings under this Act is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty as specified in Clause (iii) of Section 271(1) of the Act. Thus, recording of satisfaction in the assessment order is mandatory requirement of law for initiation of penalty proceedings, if the satisfaction is not recorded by the AO or the same is not proper, the proceedings initiated under this section would be invalid and without jurisdiction. The recording of satisfaction means that the assessment order must apparently show that there was an application of mind by the AO. The application of mind can only be gathered by the reasons stated in the assessment order or it should be discernible from the assessment order.
In the case of CIT v. Munish Iron Store (supra), the Hon'ble Punjab & Haryana High Court has also held that the jurisdiction to impose penalty flows from recording of the satisfaction of the AO regarding concealment of income. In case, there is defect in the assumption of jurisdiction i.e., if satisfaction has not been recorded, such defect cannot be cured. The Hon'ble Punjab & Haryana High Court, apart from relying on the two judgments of Delhi High Court in the cases of CIT v.Ram Commercial Enterprises Ltd. (supra) and Diwan Enterprises v. CIT (supra) has also relied on two judgments of Hon'ble Supreme Court in the cases of Jain Bros. and Ors. v. Union of India and Ors. and DM. Manasvi the sum and substance of the ratio of the various decisions is that recording of satisfaction by the AO in the assessment order is sine qua non for initiating the penalty proceedings. In the absence of such satisfaction, the initiation of penalty proceedings would be illegal, invalid and without jurisdiction.
6.1 Now in this case, the AO has merely stated towards the end of the assessment order that "Penalty notice under Section 271(1)(c) is issued". He has not applied his mind at the time of initiating the proceedings as nowhere the AO has mentioned whether the assessee has concealed the particulars of income or furnished inaccurate particulars of income. This docs not amount to recording of valid satisfaction. He has issued the notice without recording any satisfaction. Therefore, the order for imposing the penalty is illegal and without jurisdiction.
The authorities below have wrongly mentioned that the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Munish Iron Store (supra) is not applicable to the facts of the present case. In CIT v. Munish Iron Store (supra), the facts of the case were that the assessee had filed a return disclosing an income of Rs. 74,155. During the pendency of the assessment proceedings, the AO got the information that the assessee had purchased drafts from the bank out of unaccounted cash. Statement of the assessee's father was also recorded and the books of account were impounded under Section 131 of the Act.
Thereafter, the assessee filed a revised return showing income of Rs. 9,43,155. The AO completed the assessment under Section 143(3) on the basis of a revised return and also initiated penalty proceedings for levy of penalty proceedings under Section 271(1)(c). However, in the assessment order, the AO did not mention anything as to how the revised return came to be filed whether, the same was filed after the'AO had already detected the concealment as a result of enquiries made by him or otherwise. The facts noted in the order do show that the revise return came to be filed only after the AO had received the information and investigated the matter. Still, the Hon'ble Punjab & Haryana High Court by relying on the judgments of Hon'ble Supreme Court in the cases of Jain Bros, v. Union of India (supra), DM. Manasavi v. CIT (supra) and the judgments of Hon'ble Delhi High Court in the cases of CIT v.Ram Commercial Enterprises Ltd. (supra) and Diwan Enterprises v. CIT (supra) held that the assumption of jurisdiction by issue of notice under Section 271(1)(c) without recording valid satisfaction was bad in law because satisfaction about the concealment of income or furnishing inaccurate particulars of income was not recorded by the AO. The Hon'ble High Court also held that the jurisdictional defect cannot be cured. The facts of the present case are similar to the facts of the case before the Hon'ble Punjab & Haryana High Court. Here also, the AO has not recorded any finding whether the notice under Section 271(1)(c) was issued for concealing the particulars of income or furnishing inaccurate particulars of income. Therefore, the judgment of Hon'ble Punjab & Haryana high Court is squarely applicable to the facts of the present case. The learned CIT(A) ought to have considered these facts while recording a finding that this judgment of a jurisdictional High Court in the above case is not applicable to the facts of the present case. The judgment of jurisdictional High Court is binding on all the authorities working in its jurisdiction. Failure to follow such judgment is a serious lapse on the part of the CIT(A).
6.2 Further, we find that the assessee had also relied on the decision of Tribunal, Amritsar Bench, in the case of Sh. Joginder Pal, Prop. M/s New Radha Industries v. ITO (supra), where the order for imposing penalty was quashed by recording following findings: 6. I have heard both the parties and given my thoughtful consideration to the rival contentions. It is not in dispute that the addition made in the present case has been upheld by the learned CIT(A). However, it is a settled position under the law that both assessment proceedings and penalty proceedings are separate and distinct proceedings. Merely because the addition made in the case has been upheld in appeal does not by itself justify levy of penalty under Section 271(1)(c) of the IT Act. The provisions of Section 271(1)(c) mandate recording of satisfaction during the course of assessment proceedings. The jurisdiction to impose penalty flows from a recording of satisfaction and in case there is a jurisdictional defect in the assessment of jurisdiction it cannot be cured. This view finds support from the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Munish Iron Store (supra), two judgments of Hon'ble Delhi High Court in the cases of CIT v. Ram Commercial Enterprises Ltd. and Diwan Enterprises the judgment of Hon'ble Supreme Court in the case of DM. Manasvi v. CIT . In the present case, the AO has merely recorded in the assessment order that penalty notice under Section 271(1)(c) has been issued. He has not mentioned whether the asscssee has concealed particulars of income or furnished inaccurate particulars thereof. Thus, the mere mention that penalty notice under Section 271(1)(c)issued does not amount to recording of proper and valid satisfaction. Their Lordships of Hon'ble Delhi High Court, Hon'ble Punjab & Haryana High Court and Hon'ble Supreme Court in the cases referred to above have held that mere mention in the assessment order that the notice under Section 271(1)(c) is issued was not sufficient. Therefore, following the aforesaid judgments including the judgment of jurisdictional High Court in the case of CIT v. Munish Iron Store (supra), 1 hold that the penalty imposed under Section 271(1)(c) is bad in law in the absence of valid satisfaction recorded by the AO in the assessment order and the order of the AO is liable to be quashed on this ground itself.
In the above case also, the AO has recorded in the assessment order that "Penalty notice under Section 271(1)(c) has been issued". This is exactly thesame satisfaction as recorded by the AO in the present assessment order. The AO has not applied his mind whether the assessee has concealed the particulars of income or furnished inaccurate particulars of income. In fact, the AO has straightway issued the notice without recording satisfaction. Therefore, the decision of the Tribunal in the above case is applicable to the facts of the present case with full force. Still, the learned CIT(A) has observed that this decision is not applicable to the facts of the present case without assigning any reason as to how the said decision was not applicable to this case. The decisions of the jurisdictional Tribunal are binding on the authorities working in its jurisdiction. Reliance in this regard is placed on the judgment of Hon'ble Supreme Court in the case of KhaIida Automobiles v. Union of India (1995) 4 SCC Suppl. 653, where it was held that judicial discipline demands that the authorities subordinate to the Tribunal accept as binding the decisions of the Tribunal and another judgment of the Hon'ble apex Court in the case of Asstt.
Collector of Central Excise v. Dunlop India Ltd. and .
The decision of the jurisdictional High Court or the jurisdictional Tribunal can be deviated from only if there is a judgment of the Supreme Court or there is amendment to the provisions of the Act. There is none in the present case. Even while deviating from the binding judgment due to above reason, full respect has to be shown to the concerned authority. The approach adopted by the CIT(A) for not following the judgment of the Hon'ble Punjab & Haryana High Court and the decision of Tribunal, Amritsar Bench was against judicial discipline and propriety. Such action on the part of CIT(A) does no good to the Revenue much less to the taxpayer. On the contrary, this causes harassment to the taxpayer and prolongs the litigation. This is not the spirit of law. Be that as it may, we are of the considered opinion that the order for imposing penalty under Section 271(1)(c) is bad in law and without jurisdiction for the reason that the AO failed to record satisfaction in the assessment order at the time of initiating penalty proceedings. The judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Munish Iron Store (supra) and the decision of Tribunal (SMC), Amritsar Bench in the case of Sh.
Joginder Pal Prop. M/s New Radha Industries v. ITO (supra) are squarely applicable and respectfully following the same, we quash the order for imposing penalty and the resultant order of the CIT(A). The grounds of appeal of the assessee are allowed.
7. Even on merits, the assessee deserves to succeed. It is settled law that both assessment proceedings and penalty proceedings are separate and independent proceedings. The mere fact that the addition has been made and upheld in appeal does not, by itself, justify imposition of penalty under Section 271(1)(c), though the findings recorded in the assessment order may be relevant for the purpose of levy of penalty under Section 271(1)(c). Reliance in this regard is placed on the judgment of Hon'ble Punjab & Haryana High Court (Full Bench) in the case of Vishwakarma Industries v. CIT , The same view was held by the Hon'ble Madhya Pradesh High Court in the case of CIT v.Smt. Padma Devi Jain and the judgment of Hon'ble Madras High Court in the case of CIT v. Inden Bislers . In the case of Durga Kamal Rice Mills v. CIT , the Hon'ble Calcutta High Court has also held that where two views are possible and when no clear and definite inference can be drawn, in a penalty proceedings, penalty cannot be imposed. Two judgments of the Hon'ble Punjab & Haryana High Court in the cases CIT v. M.M. Rice Mills (supra) and CIT v. Himat Ram Laxmi Narain (supra) also support the same view.
7.1 Now in this case, the basic facts of the case, which have not been disputed by the Revenue are that in the original return of income, the assessee had included an amount of Rs. 5,68,000 being the value of Opel Corsa car earned by the assessee as prize money in the contest of coining slogans for M/s Compact Computer India Ltd. Bangalore, in his income. A copy of the statement of income filed alongwith the return does show that the assessee had disclosed all relevant material facts relating to the prize won by the assessee. There is neither any omission nor suppression of income relating to the amount of Rs. 5,68,000.
8. The assessee filed a revised return claiming exemption of amount of Rs. 5.68 lacs by relying on the decision of Tribunal, Hyderabad Bench in the case of ITO v. Smt. Shnkba Mukherjee (supra) and the judgment of Hon'ble Madras High Court in the case of CIT v. G.R. Karthikeyan (supra). The decision of Tribunal, Hyderabad Bench in the case of ITO v. Smt Shukba Mukherjee (supra) is directly on the issue of prize winning in slogan contest. Again when revised return was filed, the assessee had not concealed the material facts relating to the claim for exemption made by the assessee in the revised return. No evidence or material has been placed on record to show any mala fide intent on the part of the assessee to evade tax. We have also gone through the assessment order where the AO has merely made the addition by relying on the Judgment of Hon'ble Supreme Court in the case of CIT v. G.R.Karthikeyan (supra). No charge has been made out against the assessee indicating the mala fide intent on the part of the assessee. The AO has merely recorded towards end that "Penalty notice under Section 271(1)(c) is issued". The AO has not at all mentioned whether the assessee was guilty of concealing the particulars of income or furnishing inaccurate particulars of income.Dilip N. Shroff v. Jt CIT (supra), the Hon'ble Supreme Court has held that the expressions used in Section 271(1)(c) i.e., 'concealment of income' or 'furnishing inaccurate particulars' are different. Both concealment and furnishing inaccurate particulars refer to deliberate acts on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi. The Hon'ble Supreme Court has further held that the word "inaccurate" signifies a deliberate act or omission on the part of the assessee. Such deliberate act must be either for the purpose of concealment of income or furnishing inaccurate particulars. Nowhere the AO has recorded such finding which could show contumacious conduct of the assessee with a view to vade the tax. The mere filing of revised return based on bona fide belief that assessee was entitled to exemption in respect of value of Opel Corsa car supported by the decision of Tribunal, Hyderabad Bench and the judgment of Hon'ble Madras High Court cannot constitute either concealment of income or furnishing inaccurate particulars of income.
10. The Expln. 1 to Section 271(1)(c) is also not applicable as the AO has not found the explanation of the assessee to be false or not bona fide. Thus, we are of the considered opinion that even on merits penalty under Section 271(1)(c) is not leviable in this case. This ground of appeal is allowed.
11. In the result, the appeal filed by the assessee is allowed.
However, we do not consider necessary to award any cost to the assessee.