| SooperKanoon Citation | sooperkanoon.com/71931 |
| Court | Income Tax Appellate Tribunal ITAT Pune |
| Decided On | Jan-11-2002 |
| Judge | M Chaturvedi, Vice, B Chhibber, K Singhal |
| Reported in | (2002)81ITD103(Pune.) |
| Appellant | Jamnadas T. Mehta |
| Respondent | income Tax Officer |
2. The assessee, an individual had filed his returns of income for the asst. yrs. 1985-86 to 1989-90 on different dates as mentioned in para 2 of order of the CIT under Section 263. On the basis of the returns filed, assessments under Section 143(1) were made for all the years.
Subsequently, the assessee filed revised returns on 20th Nov., 1990, for the asst. yrs. 1985-86 to 1989-90 disclosing additional income by way of investment in fixed deposits with Bank of Maharashtra, Chalisgaon and interest thereon. In order to regularise these returns, notices under Section 148 were issued and the assessments were subsequently completed accepting the additional income as declared. A copy of reassessment order for the asst. yrs. 1985-86 is given on p. 8 of the paper book as a speciman. This order clearly shows that after the assessments were made under Section 143(1) the assessee filed revised returns on 20th Nov., 1990, and that as the income disclosed was substantial and was filed after the completion of assessment under Section 143(1), the return of income had to be regularised by issue of notice under Section 148 and this notice was issued under Section 148 on 23rd Jan., 1991. At the end of the assessment order, the AO observed as under : "It is gathered that the above disclosure is made by the assessee after the detection by the ITO, Investigation, Jalgaon. Hence, the same is treated as concealed income. Proceedings under Section 271(1)(c) are therefore, initiated." In response to notice under Section 271(1)(c) of the Act, the assessee had sent his reply in which it was stated that he had offered for taxation certain deposits and had paid tax in full with the revised returns. The revised returns had been filed in good faith and full and complete income was disclosed in the said revised returns and the same were filed before issue of notice by the IT authority. It was further pointed out that in the course of assessment, no addition to the income declared was made and therefore, there was no case of concealment of income or furnishing of inaccurate particulars of income as per the revised return. The assessee had co-operated in the assessment proceedings as well as had paid all the taxes before filing the revised return. Since according to the assessee, the AO had not detected concealment of income in the course of assessment proceedings, there was no concealment and no penalty for concealment of income was leviable. Reliance was placed on the following three decisions of the Hon'ble Supreme Court.
Thereafter, the learned AO passed an order thereby dropping the penalty proceedings. His order read as under : "Penalty proceedings initiated under Section 271(1)(c) of the IT Act, 1961, for asst. yr. 1985-86 are hereby dropped." "Assessee has filed written explanation on 9th May, 1991 and contended therein that no concealment has been detected during the course of assessment proceedings by the AO. The declaration of higher income is made before the issue of notice under Section 148.
Assessee has also cited the various decisions of Supreme Court. In view of the explanation, the proceedings are dropped." 3. The CIT Nasik, called for the record of the assessee and noted that the penalty proceedings under Section 271(1)(c) were dropped by the AO without proper verification of the facts and material placed on record.
He was, therefore, of the opinion that the orders passed by the AO were erroneous and prejudicial to the interest of Revenue. He accordingly invoked his jurisdiction under Section 263. A notice under Section 263 was issued to the assessee on 20th July, 1992, giving the following two reasons : "(i) Penalty proceedings under Section 271(1)(c) were dropped by the ITO without proper verification of the facts and the material available on record.
(ii) Revised returns filed by the assessee on 20th Nov., 1990, were after completion of the assessment under Section 143(1) and also after the undisclosed fixed deposits were detected by the Department.
4. The assessee sent his detailed reply, dt. 10th Aug., 1992, to the above notice, a copy of which has been placed on pp. 23 to 32 of the paper book. In this reply, it was brought out in para 8 (p. 27 of the paper book) that the assessee had brought to the notice of the AO that the returns were filed much before the ITO Investigation, Jalgaon, recorded a statement of the assessee. It was further explained that the said ITO, Investigation, Jalgaon, had not detected any concealment of income. He Had only recorded the assessee's statement under Section 131 of the Act on 20th Dec., 1990, after the revised returns were filed. It was also clarified that the sources of various investments in-FDRs had come out of the assessee's past savings from about 40 to 45 years and since the assessee did not have any documentary evidence thereof, he had decided to file the revised returns to buy mental peace as he was a heart patient. It was submitted in para 11 that the assessee had explained all the above facts to the AO after the reply of penalty notice was given and that it was only after full consideration of the above facts and circumstances of the case and after considering the bona fide of the assessee in making disclosure that the AO dropped the penalty proceedings. In these circumstances, it was submitted that the intimation of dropping penalty proceedings could not be made subject-matter of revision under Section 263 of the Act. Lastly in para 14, it was mentioned that for the asst. yr. 1989-90, the return was within the time as per Section 139(5) and there was no necessity to issue notice under Section 148.
5. The CIT was not satisfied with the explanation furnished and after discussing a number of case laws on the issue he held in para 10 of his order as under : "Foregoing facts lead to a conclusion that there was no voluntary disclosure as the assessee had attempted to conceal his income altogether by not disclosing the fixed deposits in the original returns. These are the circumstances which would amount to concealment of income. Omission to consider the material on record while dropping the penalty is certainly prejudicial to the interest of Revenue. Moreover, the fact that the AO has initiated action by issue of notice under Section 148 is suggestive of escapement of income. The assessee's contention that the ITO's order was an intimation and voluntary disclosure in the form of revised returns in particular do not conclusively prove that the disclosure was voluntary and there was no order of the ITO. The ITO's orders under Section 271(1)(c) dropping the penalty proceedings are therefore set aside. The ITO is directed to make an order in accordance with law on the basis of record and the facts." 6. Shri V.H. Patil, advocate, accompanied by Shri K.A. Sathe, advocate, submitted that on the facts and in the circumstances and in law, the learned CIT erred in invoking the provisions of Section 263 of the Act and holding that the AO erred in dropping the penalty proceedings under Section 271(1)(c) of the Act on the ground that the said order was prejudicial to the interest of Revenue. The learned counsel further submitted that the CIT ought to have appreciated that the provisions of Section 271(1)(c) could be invoked only when the CIT had detected during the course of assessment proceedings by the AO and not otherwise. According to the learned counsel, the CIT failed to bring on record any cogent material to substantiate his claim that the orders passed by the AO dropping the penalty proceedings under Section 271(1)(c) were erroneous and prejudicial to the interest of Revenue.
The learned counsel drew our attention to the two reasons given by the learned CIT in his notice under Section 263 and submitted that the same are incompatible and inconsistent with each other. If it was the case of the learned CIT that no proper enquiries were made by the ITO, action under Section 263 could be justified, but in. that case, question of going to merits of leviability of penalty should not have arisen. If no enquiries had been made, question of detection of concealment could not have arisen. If the learned CIT was of the opinion that the order of the AO for dropping penalty was based on wrong reasoning, then it would amount to only substitution of the discretion of the AO with that of the CIT. The learned counsel drew our attention to para 4 of the order of the CIT where the CIT has stated that on 3rd Aug., 1989, the Bank of Maharashtra, Chalisgaon had furnished certain details about fixed deposits made by the assessee. On receipt of the information, the AO had issued a letter on 8th Sept., 1990 to the assessee requesting him to furnish the details of FDRs and since there was no reply to this letter, the ITO Investigation, summoned the Bank on 24th Sept., 1990, and then information was obtained on 3rd Nov., 1990 in which the details of FDRs were given.
According to the learned counsel this information collected by the Department did not constitute detection, because the letter, dt. 8th Sept., 1990 was not received by the assessee and the Department in any case was only making a general enquiry and had obtained details from the bank on their own of which the assessee was not aware at all.
According to the learned counsel, a mere fact that certain deposits stood in the name of the assessee will not lead to any inference that these deposits were unexplained investment of the assesses or that any income had escaped assessment. Giving an example, the learned counsel submitted that the deposits might be held in the capacity of HUF, deposits might be a mere renewal of earlier deposits, they might have come out of savings of the assessee from taxable or non-taxable income, etc. Unless these further facts are investigated, a firm conclusion whether this constitutes income of the assessee could not be drawn and, therefore, a mere information about the fixed deposits could not amount to detection by the Department. The learned counsel further submitted that the Courts have generally taken a view that unless the AO comes to a definite conclusion that there is any escapement of income, it cannot be said that, there is any detection by the Department, but in the present case, the returns were filed, when notices under Section 148 were not issued. This means that the Department had not made up its mind whether or not there was any escapement. In this context, the learned counsel relied upon the decision of the Cochin Bench of the Tribunal in the case of A. Shreenivasa Pai v. ITO (1934) 47 TTJ (Coch) 163, in which it was held that though the ITO seems to have entertained doubts about the credit balance of one G & Co. and wanted to verify similar other balances and though summons and letters was stated to have been issued to different concerns from whom the assessee had purchased sugar and rice, it was not shown that the assessee was in the knowledge of the contents of an order-sheet entries to show that the ITO had revealed his mind either to the assessee's representative or to the assessee. There was also no material to show that these summons were served on the parties before the assessee filed a second return offering additional income. There was nothing on record to say that the banks to whom the ITO had issued letters had in turn relayed the information to the assessee about the enquiries made with them.
Whatever might have happened behind his back, the assessee was unaware of them till filing of the second return. It was therefore, held that since there was no clinching evidence to the contrary, the second return was to be treated as a revised return or not, what was material was that the disclosure was full and complete and was made voluntarily i.e., prior to detection by the Department. The learned counsel further made a reference to p 1634 of the Commentary on Income-tax by Kanga and Palkhivala wherein it has been commented that if the assessee having filed a false return made a voluntary disclosure or filed a revised return before the ITO took up the original return for consideration, penalty need not be Imposed. This Commentary by Palkhivala was supported by the following decisions : (4) CIT v. Bengal Iron Galvanising Works (1987) 165 ITR 249 (Cal); and After referring to the above, the learned counsel submitted that this was not a case where there was any lack of enquiry, but a case where the assessee had filed voluntary returns and in view of the fact that they were filed before the issue of notice under Section 148 the ITO had rightly dropped the penalty proceedings.
7. As regards the voluntary nature of the returns, the learned counsel made a reference to four decisions of the Bombay High Court which were as follows : (3) J. Rasiklal & Co. v. G.K. Mishra & Ors. (1991) 188 ITR 591 (Bom); and (4) Rohitkumar & Co. & Ors. v. F.J. Bahadur, CTT & Ors. (1991) 190 ITR 93 (Bom).
At the end of his arguments, the learned counsel referred to the office note recorded by the AO below the order under Section 271(1)(c) which is already reproduced in para 2 on p, 2 above and submitted that this office note clearly indicated that the learned AO had applied his mind and then had come to the conclusion. Thus, according to the learned counsel it could not be considered as a case of non-enquiry as was believed by the CIT, The learned counsel concluded that if the AO in his judicial discretion had come to a finding on application of mind, such finding even assuming to be wrong, could not be called in question by the learned CIT under Section 263.
8. Shri Naresh Kumar, the learned senior Departmental Representative strongly supported the orders of the learned CIT. He submitted that perusal of the assessee's submission dt. 8th May, 1991, on the basis of which penalty proceedings were dropped by the AO indicates that the contentions raise by the assessee before the AO were accepted by the AO without any application of mind and without going through the case records. There was ample material available on the case file of the assessee, to prove that the assessee had concealed the particulars of his income, that the assessee filed returns after the FDRs were detected by the Department and after the assessee was questioned by the ITO (Investigation). Yet, the AO chose to drop the penalties. The learned Departmental Representative submitted that the fact that the penalties were dropped without application of mind, is also clear from the fact that the ITO did not put the date while dropping the penalty.
In his office note, the AO has mentioned that the assessee has filed the written submissions on 9th May, 1991, whereas the written submissions are, dt. 8th May, 1991. The learned Departmental Representative submitted that the explanation filed by the assessee is so blind and so devoid of basic facts that no "prudent officer" would accept the explanation, particularly when such huge material against the assessee was available on record. He relied upon the judgment of the Supreme Court in the case of Star. Tara Devi Agarwal vs. CIT (1973) 88 ITR 323 (SC) where it has been held that if the AO completes the assessment without making proper enquiries, action under Section 263 can be taken by the CIT. He further relied upon the judgment of the Supreme Court in the case of Rampyari Devi Saraogi v. CIT & Ors. (1968) 67 ITR 84 (SC) where it has been held that if there is ample material to show that the ITO had made assessment in undue haste without any evidence or enquiry, the CIT may take action under Section 263. The learned Departmental Representative further submitted that unlike the civil Court which is neutral to give decision on the basis of evidence produced before it, an AO is not only an adjudicator but is also an investigator.
He cannot remain passive in the face of a return which is apparently in order but calls for further enquiry. According to the learned Departmental Representative it is AO's duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke enquiry. The meaning to be given to the word 'erroneous' in Section 263 emerges out of this context. The word 'erroneous' in that section includes cases where there has been a failure to make the necessary enquiries. In support of this contention, he relied upon the following decisions : (4) CIT v. Belal Nisa (1988) 171 ITR 643 (Pat). The learned Departmental Representative also relied on the decision of the Madras High Court in the case of Indian Textiles v. CIT (1986) 157 ITR 112 (Mad) where it has been held that where the AO granted relief without proper verification, exercise of powers under Section 263(1) by the GIT was proper exercise of powers.
9. The learned Departmental Representative further submitted that the AO is duty-bound to exercise his discretion in a judicial manner and in this context, he drew our attention to the following paragraph in the case of U.G.S. Chopra v. State of Bombay AIR "Discretion means when it is said that something is to be done within the discretion of the authority that something is to be done according to the rule of reason and justice, not according to private opinion, according to law and not humour. It is to be not arbitrary or vague and fanciful but legal and regular. And it must be exercised within the limits to which an honest man competent to the discharge of his office must confine himself." According to the learned Departmental Representative viewed in the light of the aforesaid judgments, it becomes apparent that the AO while dropping the penalties neither made reference to the plethora of evidence available on record, nor made further enquiries, which he was duty-bound to make before deciding the issue of dropping of the penalties, nor exercised discretion in a proper manner. He, therefore, concluded that the orders of the CIT deserve to be upheld.10. As rejoinder, Shri Patil, the learned counsel for the assessee submitted that it was clear from the arguments of the learned Departmental Representative that this was not a case of non-enquiry.
He was also not justified in stating that there was no office note as the same has been reproduced by the learned CIT in his order. The learned counsel submitted that the learned senior Departmental Representative also failed to note that the assessments as well as the orders dropping penalty were passed by the same officer. Statements to which reference was made were taken after the assessee had already filed returns and in fact such statements revealed that before filing of the returns, the Department had no definite information or had not detected any concealment. Considering that the same ITO who made the assessments had dropped the penalty showed that he was in the full knowledge of the facts and had correctly appreciated them in dropping the penalty. It cannot, therefore, be said that he has unjudiciously used his discretion in coming to the conclusion that the penalty was required to be dropped. According to the learned counsel, the penalty being a matter of discretion, the learned CIT under Section 263 had no jurisdiction to substitute his own discretion in place of that of the AO. In support of this contention, he relied on the judgment of the Bombay High Court in the case of CIT v. Gabriel India Ltd., (1993) 203 ITR 108 (Bom), 11. We have considered the rival submissions and perused the facts on record. It is now well settled position of law that in order to assume jurisdiction under Section 263 of the Act, the CIT must satisfy himself prima facie that the order of the AO is erroneous and prejudicial to the interest of Revenue. Such satisfaction must be based on the material on record. The assumption of jurisdiction under Section 263 cannot be made in a casual and arbitrary manner and if there is no material on record to satisfy prima facie that the aforesaid two conditions are present then the provision of Section 263 cannot be invoked. In this connection, reference may be made to the decision of the Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra) at p. 116. The relevant portion is reproduced below : "There must be material available on record called for by the GIT to satisfy him prima facie that the aforesaid two requisites are present. If not he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power.... It is well settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such material must have materials on record to satisfy it in that regard....... It is an important decision and the same cannot be based on the whims or caprice of the revising authority.
There must be materials available from the records called for by the CIT".
12. The Hon'ble Madras High Court in the case of Venkatakrishna Rice Co. v. CIT (1987) 167 ITR 129 (Mad) has held that when an order of assessment of the ITO is in accordance with law, it cannot be held to be erroneous in law and consequently it cannot be prejudicial to the interests of the Revenue and hence the action of the CIT in such a case cannot be justified. The following observations of the Hon'ble Madras High Court on pp. 156 and 157 of the said judgment are very significant.
"In our judgment, the expression 'prejudicial to the interest of the Revenue' is not to be construed in a petty-fogging manner, but must be given a dignified construction. It may be noted that the use of expression 'Revenue' in our opinion, is significant. It denotes some kind of abstraction or symbol in the same sense in which the expression 'crown' is used to distinguish it from any person enthroned. The interests of the Revenue is not to be equated to rupees and paise, merely. There is a biblical saying that we do not live by bread alone. Varying this saying, it may be said that the Revenue does not live by tax alone. In this sense, therefore, the interests of the Revenue are not tied up merely with realising as much revenue as possible, willy nilly, merely looking to the productivity aspect of taxation. The jurisdiction of the CIT under Section 263 is undoubtedly a supervisory jurisdiction. It is intended for interference in special cases to counteract orders which are erroneous as well as prejudicial to the interests of the Revenue. In this context, therefore, the expression 'prejudicial to the interests of the Revenue must be regarded as involving a conception of acts or orders which are subversive of the administration of Revenue. There must be some grievous error in the order passed by the ITO, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the GIT might think to be prejudicial to the interests of Revenue administration. There might be cases where the CIT might wish to interfere with an order of the ITO in order to safeguard the fair name and reputation of the IT Department without any thought of going into the particular aspects of the assessment. Assessments which are mala fide politically and communically motivated may be, however, set aside as being prejudicial to the interests of the Revenue. It is unnecessary for us to illustrate the point any further. All that we wish to observe is that the scope of interference under this section is not to set aside merely unfavourable orders and bring to tax some more money to the treasury. Nor is the section meant to get at sheer escapement of revenue which, as is well known, is taken care of by provisions elsewhere in the Act such, for instance, as Section 147 of the Act. The prejudice must be prejudice to the Revenue administration." 13. In the cases before us, on the basis of returns filed, assessments under Section 143(1) were made for all the years. Subsequently, the assessee filed revised returns on 20th Nov., 1990, for asst. yr.
1985-86 to 1989-90, disclosing additional income by way of investments in fixed deposits with Bank of Maharashtra, Chalisgaon and interest thereon. In order to regularise these returns notices under Section 148 were issued and the assessments were subsequently completed accepting the additional income as declared. During the course of assessment proceedings, the AO initiated penalty proceedings under Section 271(1)(c) of the Act. In response to the show-cause notice issued by the AO the assessee sent his reply in which it was stated that he had offered for taxation certain deposits and had paid the tax in full with the revised returns. The revised returns had been filed in good faith and full and complete income was disclosed in the said revised returns and the same were filed before the issue of notice under Section 148 by the AO. It was further pointed out that in the course of assessment, no addition to the income declared was made and therefore, there was no case of concealment of income or furnishing of inaccurate particulars of income as per the revised returns. It was stated that the assessee had co-operated in the assessment proceedings as well as had paid all taxes before filing the revised returns. It was also submitted that since there was no detection of concealment of income, no penalty for concealment of income was leviable and in support of this contention, the assessee relied upon three judgments of the Hon'ble Supreme Court referred to at p. 2 supra. The AO after considering the submissions made by the assessee passed a brief order dropping penalty proceedings initiated under Section 271(1)(c) of the Act. But at the same time, he wrote an office note which has been reproduced at p. 2 supra. A careful reading of the said office note which is part and parcel of the AO's order under Section 271(1)(c) clearly indicates that the learned AO had applied his mind and then he had come to the definite conclusion that on the facts and circumstances of the case, penalty under Section 271(1)(c) is not exigible. The penalty proceedings are penal in nature.
Elementary principles of criminal law will apply. These are quasi criminal proceedings. There should be conscious concealment. The provisions should be construed strictly. It is now well settled that penalty proceedings are distinct and different from assessment proceedings and independent therefrom--Krishan Lal Shiv Chand Rai v.CIT (1973) 88 ITR 293 (P&H) and B. Muniappa Gounder v. CIT (1976) 102 ITR 787 (Mad). The findings in the assessment proceedings are not conclusive but are relevant. Penalty is not automatic and simply because the addition has been upheld, it does not ipso facto mean that the penalty must be levied. That will depend on the facts and circumstances of each case. Merely because, the finding of the AO has been confirmed by the appellate authority, is also no ground for levying penalty if the circumstances do not warrant levy of penalty.
The entire material available is to be considered afresh by the authorities below imposing penalty. From the facts of the case before us, it is evident that the AO exercised his discretion to drop the penalty proceedings judiciously after taking into consideration the entire material available before him. It is pertinent to note that the assessments as well as the orders dropping the penalty were passed by the same officer. The statements to which reference was made by the learned Departmental Representative were taken after the assessee had already filed returns and in fact, such statements reveal that before filing of the returns, the Department had no definite information or had not detected any concealment.
14. The word 'conceal' is derived from the latin concelare which implies con + celare to hide. Webster in his New International Dictionary equates its meaning 'to hide or withdraw from observation; to cover or keep from sight; to prevent the discovery of; to withhold knowledge of'. The offence of concealment is thus a direct attempt to hide an item of income or a portion thereof from the knowledge of the IT authorities.
15. It is implicit in the word 'concealed' that there has been a deliberate act on the part of the assessee. The meaning of the word 'concealment' as found in Shorter Oxford English Dictionary, 3rd Edition, Vol. I, is as follows : "In law, the intentional suppression of truth or fact known, to the injury or prejudice of another CIT v.J.K.A. Subramania Chettiar (1977) 110 ITR 602 (Mad).
16. Considering that the same ITO who made the assessments had dropped the penalty showed that he had made the necessary enquiries and was in full knowledge of the facts and had correctly appreciated them in dropping the penalty. It cannot be said that he has unjudiciously used his discretion in coming to the conclusion that the penalty was required to be dropped. Penalty being a matter of discretion, the learned CIT under Section 263 had no jurisdiction to substitute his own discretion in place of that of the AO. In this behalf, the decision of the Bombay High Court in the case of CIT vs. Gabriel India Ltd. (supra) is very relevant. The decision is to be seen also in the context of the fact that under Section 271(1)(c) of the Act, the CIT has no power to levy penalty and that discretion to levy or not to levy is given only to the AO and not to the CIT.The CIT cannot indirectly do what is barred from doing under the Act.
Following observations of the Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra) are very relevant.
"This is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the CIT the order in question is prejudicial to the interests of the Revenue. But that by itself would not be enough to vest the CIT with the power of suo motu revision because the first requirement, namely, that the order is erroneous, is absent." "If an ITO acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the CIT simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the CIT for that of the ITO who passed the order, unless the decision is held to be erroneous." 17. In the light of the above discussion, we hold that no case has been made out by the learned CIT for invoking his jurisdiction under Section 263 of the Act on the facts and in the circumstances of the present case. We accordingly quash his orders.
19. After going through the order proposed by my learned Brother, I have not been able to persuade myself to agree with the conclusions arrived at by him for the reasons given hereafter.
20. The issue for consideration before the Bench is whether the order passed by the AO dropping the penal proceedings initiated under Section 271(1)(c) is erroneous and prejudicial to the interest of Revenue within the ambit of Section 263. It has been held by my learned brother that no case has been made out by the CIT for assuming jurisdiction under Section 263 for the following reasons : 1. The office note appended to the impugned order of the AO shows that he had applied his mind and then he had come to the definite conclusion that on the facts and circumstances of the case, penalty under Section 271(1)(c) was not exigible (para 13, page 13).
2. That from the facts of the case, it is evident that the AO exercised his discretion to drop the penalty proceedings judiciously after taking into consideration the entire material available before him. The facts that the assessments as well as the orders dropping the penalty were passed by the same officer and that the statements which were recorded after filing of the returns indicate that the Department had no definite information and had not detected any concealment (para 13, p. 14).
3. The fact that the same ITO who made the assessments had dropped the penalty showed that he had made necessary enquiries and was in full knowledge of the facts and had correctly appreciated them in dropping the penalty. It cannot be said that he has unjudiciously used his discretion in coming to the conclusion that the penalty was required to be dropped. Penalty being a matter of discretion, the learned CIT, under Section 263 had no jurisdiction to substitute his own discretion in place of that of the AO (para 16, p. 14). 4. In coming to the aforesaid conclusions, he has relied on the decision of jurisdictional High Court in the case of Gabriel India Ltd. (supra) and the decisions of Madras High Court in the case of Venkata Krishna Rice Co. (supra) and in the case of J.K.A. Subramanya Chettiar (supra), and in the case of Maniappa Gounder (supra), and the decision of Punjab & Haryana High Court in the case of Krishanlal Shivchand Rai v. CIT (supra).
21. Before expressing my opinion, it is necessary for me to briefly state the relevant facts which have bearing on the issue before the Bench. The factual events as gathered from the record are stated as follows : 1. The assessee is an individual who was regular income-tax assessee and was assessed to tax under Section 143(1) in respect of the assessment years under consideration, details of which are as under : 2. Subsequently, ITO Investigation, Jalgaon, started verification of demand drafts/fixed deposits made by the persons with Bank of Maharashtra, Chalisgaon. The said bank vide its letter, dt. 3rd Aug., 1989, informed the said officer in respect of various deposits made by the assessee totalling Rs. 10,15,000 details of which are given in the order of CIT. 3. On the receipt of such information from the bank, the said officer issued the letter, dt. 8th Sept., 1990, to the assessee requesting to him to furnish the details of fixed deposits owned by him. Accordingly to the said officer, the assessee failed to comply with this letter, This fact has been disputed before us by submitting that no such letter was ever received by the assessee.
The senior Departmental Representative was directed to produce the original record to prove this fact. Subsequently, the senior Departmental Representative informed that the said letter was not available on the record. Even the order-sheet was not produced to prove this fact. The CIT hag specifically stated in respect of this letter in para 4 of his order. It is, difficult to believe that CIT would have referred to such letter without its existence. However, since the assessee has denied categorically about the service of such letter and the Department has failed to prove this fact, an adverse inference has been drawn against the Revenue. Hence, no evidentiary value will be given to this alleged letter while coming to any conclusion.
4. On 24th Sept., 1990, the said officer summoned the bank manager requesting him to furnish the relevant details with dates and numbers of FDRs. In response to the same, the detailed information was furnished by the bank as per its letter dt. 3rd Nov., 1990 as under : 5. Immediately thereafter, i.e., on 20th Nov., 1990, the assessee filed the so-called revised returns offering the aforesaid amount of investments in fixed deposits and interest thereon as income from other sources.
6. Since the so-called revised returns were filed after the completion of assessments, the same were regularised after issuing notices under Section 148 on 23rd Jan., 1991, after seeking necessary approval from Dy. CIT, Range-2, Jalgaon.
7. The assessments were completed accepting the additional income offered By the assessee vide orders, dt. 26th March, 1991, while completing such assessments, penalty proceedings under Section 271{l)(c) were initiated for all the years.
8. In the course of reassessment proceedings, the AO had also recorded the statement of the assessee under Section 131 on 20th Dec., 1990, relevant portion of which will be discussed in my order as and when necessary.
9. In response to the show-cause notice issued under Section 271(1)(c), the assessee filed his reply vide letter dt. 8th May, 1991, by tendering explanation to the fact that the revised returns were filed voluntarily and in good faith disclosing all particulars of his income prior to the issue of notice either under Section 142(1) or 148. Since the revised returns were filed prior to any detection by the Department and the assessee had co-operated in assessment proceedings and paid the tax correctly, it could not be said that there was any concealment of income. In support of his explanation, he relied on various decisions of Supreme Court namely in the case of Anwar Ali (supra) in the case of Khoday Eswara & Sons (supra) and in the case of Sir Shadilal Sugar & General Mills Ltd. & Anr. (supra) 10. On the basis of. the aforesaid reply, the AO dropped the penalty proceedings for all the years by passing one line order that "penalty proceedings initiated under Section 271(1)(c) of the IT Act, 1961, for asst. yr. are hereby dropped." However, office note was prepared by the AO as under : "Assessee has filed written explanation on 9th May, 1991, and contended therein that no concealment has been detected during the course of assessment proceedings by AO. The declaration of higher income is made before the issue of notice under Section 148.
Assessee has also cited the various decisions of Supreme Court. In view of the explanation the proceedings are dropped." 22. In view of the facts stated above and the explanation offered by the assessee, the question to be considered is whether the order of the AO dropping the penal proceedings under Section 271(1)(c) can be said to be erroneous and prejudicial to the interest of Revenue so as to confer jurisdiction upon the CIT under Section 263. An order can be said to be erroneous when it is not in accordance with law. Whether an order is erroneous and prejudicial to the interest of Revenue has to be seen with reference to the reasonings given by the CIT for assuming jurisdiction under Section 263 and the explanation offered by the assessee which persuaded the AO to drop the penal proceedings as well as the provisions of Section 271(1)(c).
The office note reveals that AO dropped the penal proceedings solely by accepting the explanation of the assessee that no concealment had been detected by the AO during the course of assessment proceedings and the declaration of higher income was made prior to the issue of notice under Section 148. The show-cause notice issued by the CIT shows that provisions of Section 263 were invoked for the reasons that the revised return declaring additional income could not be considered as voluntary return. In my view, the CIT had rightly exercised the jurisdiction under Section 263 for the reasons given hereafter.
23. It is the settled law that the concealment of particulars of income has to be seen with reference to the original return filed by the assessee as held by the Hon'ble Supreme Court in the case of Brij Mohan vs. CIT (1979) 120 ITR 1 (SC). It is because that assessee is bound to disclose the primary and material fact of his income in the original return as held by the apex Court in the case of Indo Aden Salt Manufacturing & Trading Co. (P) Ltd. v. CIT (1986) 159ITR 624 (SC) and in the case of Calcutta Discount Co. Ltd. v. ITO & Anr. (1961) 41 JTR 191 (SC). Therefore, in my opinion, non-disclosure of primary facts would raise a presumption of concealment of particulars of income unless bona fides of the assessee are proved. In this connection, reference can also be made to the Explanation to Section 271(1)(c) which creates a legal fiction that particulars of income shall be deemed to have been concealed if the assessee (1) fails to offer an explanation or offers an explanation which is found to be false, and (2) such explanation is not substantiated by the assessee and fails to prove that such explanation is bona fide and all the facts relating to the same have been disclosed. In the present case, admittedly, assessee had not even whispered about the deposits made by him and interest earned thereon either in the original return or in the assessment proceedings not only in one year but in all the years under consideration despite his full knowledge of the facts. Since the assessee was enjoying the interest income, it cannot be said that he was unaware of the primary facts. His bona fides are therefore, not proved. On the contrary, it appears that he wanted to hide such particulars from the knowledge of the Revenue. Therefore, the legal fiction created by the Explanation to Section 271(1)(c) can be invoked for holding that particulars of income were concealed by the assessee at the time when the original returns were filed. Therefore, the explanation of the assessee that no concealment had been detected in the course of original assessment proceedings, had no bearing on the issue and consequently, the same could not have been considered by the AO for dropping the penal proceedings.
24. The second aspect of the explanation of the assessee was that full particulars of the fixed deposits and interest earned thereon were voluntarily disclosed by the assessee in the revised returns prior to the issued of notice under Section 148. In my view, this explanation also had no legs to stand; A valid revised return can be filed under Section 139(5} before the expiry of one year from the end of the assessment year or before the completion of the assessment whichever is earlier. This clearly means that revised return cannot be filed after the completion of the assessment proceedings. That is what the Hon'ble Supreme Court also held in the case of Esthuri Aswathiah v. JTO (1961) 41 ITR 539 (SC). The relevant portion of the judgment appearing at p.
543 to 544 is being reproduced as under : "Under Section 22, Sub-section (3), an assessee may submit a revised return if after he has furnished the return under Sub-section (2) he discovers any omission or wrong statement therein. But such a revised return can only be filed "at any time before the assessment is made" and not thereafter. The return dt. 26th Feb., 1957, was submitted after the assessment was made pursuant to the earlier return and it could not be entertained. Nor could the lodging of such return debar the ITO from commencing a proceeding for reassessment of the appellant under Section 34(1) of the Indian IT Act." 25. There is no dispute about the fact that the so-called revised returns were filed much after the completion of assessment proceedings.
It is apparent from the facts stated in this order that revised returns were filed on 20th Nov., 1990, while assessments for all the years were completed on 29th Nov., 1985, 28th Jan., 1987, 22nd Dec., 1987, 15th March, 1989 and 16th March, 1990 of asst. yr. 1985-86 to 1989-90 respectively (pp. 17 and 19 of this order). Therefore, such returns cannot be considered as valid returns being non est in the eye of law.
Consequently, no. cognizance of the same could be taken by the AO while dropping the penalty proceedings.
26. There is another aspect of this matter that the chart appearing at p. 17 of this order shows that returns for asst. yrs. 1985-86, 1988-89 and 1989-90 were filed beyond the due date specified under Section 139(1). Therefore, such returns were belated returns and can be said to have been filed under Section 139(4) only. The Hon'ble Supreme Court in a recent judgment in the case of Kumar Jagdishchandra Sinha v. CIT (1996) 220 ITR 67 (SC) has held that revised return could not be validly filed where the assessee had not filed the return within the specified time under Section 139(1). Therefore, even on this ground, the assessee was not entitled to file revised returns for these years.
27. Another aspect of the explanation of the assessee was that no detection was made by the AO, but all the particulars were filed by the assessee himself in the revised returns. In my opinion, this aspect is not relevant for deciding the issue. It is not the requirement of the law that concealment of income must be as a result of detection by the Department. As already observed, the fact of concealment has to be seen with reference to the material available on the date of filing of the original returns (1979) 120 ITR 1 (SC) (supra). No doubt, in the penalty proceedings, the assessee has every right to establish that non-disclosure of the primary facts are bona fide. The concept of "detection" was imported by the CBDT in the Amnesty Scheme with which we are not concerned. It is sufficient if it is shown that primary facts were withheld by the assessee deliberately. Therefore, in my view, the AO could not consider this aspect while dropping the penalty particularly when the facts relating to deposits in the bank and the earning of interest thereon was found by the AO in the course of survey by him under Section 133.
28. In. view of the above discussion, in my opinion, none of the aspects of assessee's explanation was relevant for dropping the penalty proceedings. Consequently, the CIT was legally justified in assuming jurisdiction under Section 263 by holding that the impugned order of the AO was erroneous and prejudicial to the interest of Revenue inasmuch as the assessee had not disclosed the particulars of his income in the original return and there was no valid disclosure in the so-called revised returns.
29. Before parting with this order, I would like to mention that Mr.
Patil, the learned counsel for the assessee, had submitted that CIT had given certain findings regarding concealment of income and therefore, AO was bound to pass an adverse order against the assessee in the penalty proceedings. It is hereby made clear that AO would make an independent enguiry after considering the material on the record and, also by considering the material which may be placed before him by the assessee without being influenced by any observations of CIT on merits.
Even the observations made in this order are to be seen with reference to the issue before us and would not be binding on the AO while deciding on merits. The AO is directed to pass the order in accordance with law after recording independent finding on the basis of material before him.
30. Subject to the observations made above, the appeals of the assessee are dismissed.
As there is a difference of opinion between the AM and JM, the matter is being referred to the President of the Tribunal with a request that the following question may be referred to TM or to pass such orders as the President may desire : "Whether, on the facts and in the circumstances of the case, the CIT is justified in setting the orders of the AO relating to the asst.
yrs. 1985-86 to 1989-90 under Section 263 of the IT Act, 1961 ?" 1. Under Section 255(4) of the IT Act (hereinafter called the Act), following question was referred for my opinion : "Whether, on the facts and in the circumstances of the case, the CIT is justified in setting the orders of the AO relating to the asst.
yrs. 1985-86 to 1989-90 under Section 263 of the IT Act, 1961 ?" 2. I have heard the rival submissions in the light of material placed before me and precedents relied upon. The general conspectus of the main plank of Shri Patil's argument was that the conditions precedent for assuming jurisdiction under Section 263 of the Act did not exist in the facts and circumstances of the case.
The AO initiated penalty proceedings under Section 271(1)(c).
Subsequently, the assessee filed explanation on 9th May, 1991. It was alleged that no concealment was detected during the course of assessment proceedings. Declaration of higher income was made before the issuance of notice under Section 148. The AO considered the explanation and dropped the penalty proceedings. The CIT assumed jurisdiction under Section 263. He found the order of AO erroneous and prejudicial to the interest of Revenue for the following two reasons : (i) Penalty proceedings under Section 271(1)(c) were dropped by the ITO without proper verification of the facts and material available on record.
(ii) Revised returns filed by the assessee on 20th Nov., 1990, were after completion of the assessments under Section 143(1) and also after the undisclosed fixed deposits were detected by the Department.
4. The learned JM differed from the learned AM. In support of the levy of penalty, the learned JM has given the following two reasons : (i) Concealment of particulars of income has to be seen with reference to the original return filed by the assessee. The legal fiction created by Explanation to Section 271(l}(c) can be invoked for holding that particulars of income were concealed by the assessee at the time when original returns were filed.
(ii) A valid revised return can be filed under Section 139(5) before the expiry of one year from the end of the assessment year or before the completion of the assessment whichever is earlier. A revised return cannot be filed after the completion of the assessment proceedings.
4.1 Shri Patil contended that it is not open for the Tribunal to substitute the reasons given. The CIT did not say that AO should invoke Explanation. Reliance was placed on the decision of Punjab & Haryana High Court rendered in the case of CIT v. Jagadhri Electric Supply & Industrial Co. (1983) 140 ITR 490 (P&H). In this case, it was held that the Tribunal, while deciding an appeal filed against Section 263(1) order cannot uphold the order of the CIT on a ground, which could have been available to the CIT at the time of passing his order, but which he had not made a basis for such order. Shri Patil submitted that the Tribunal cannot uphold' the order of the CIT on a ground different from the one considered, adjudicated and decided by the CIT. Therefore, the learned Judicial Member was not correct in considering the applicability of Explanation to Section 271(1)(c).
5. Coming now to the validity of the return, both the parties agreed that the return under consideration cannot be construed to be a revised return. It was a return which was filed pursuant to the notice issued under Section 148. The fact that the return was first filed with a request to regularise the same under Section 148 does not make the return as a revised return.
6. Shri Patil further pointed out that CIT adumbrated flaw in the order of AO on the basis of letter sent to the assessee by the ITO (Investigation) on 8th Sept., 1990. It is stated in the order : "ITO (Inv) had himself initiated enquiries and had sent a letter to the assessee on 8th Sept., 1990, specifically asking him to furnish the details of investment in fixed deposits only." The Department failed to produce this letter. Both the learned Members accepted this fact in their respective orders. The learned AM observed at p. 5 of the order as under: "According to the learned counsel, this information collected by the Department did not constitute detection, because the letter dt. 8th Sept., 1990 was not received by the assessee and the Department in any case was only making a general enquiry and had obtained details from the bank on their own of which the assessee was not aware at all." "On the receipt of such information from the bank, the said officer issued the letter dt. 8th Sept., 1990, to the assessee requesting the him to furnish the details of fixed deposits owned by him.
According to the said officer, the assessee failed to comply with this letter. This fact has been disputed before us by submitting that no such letter was ever received by the assessee. The senior Departmental Representative was directed to produce the original record to prove this fact. Subsequently, the senior Departmental Representative informed that the said letter was not available on the record. Even the order-sheet was not produced to prove this fact. The CIT has specifically stated in respect of this letter in para 4 of his order. It is difficult to believe that CIT would have referred to such letter without its existence. However, since the assessee has denied categorically about the service of such letter and the Department has failed to prove this fact, an adverse inference has been drawn against the Revenue. Hence, no evidentiary value will be given to this alleged letter while coming to any conclusion." It was alleged by Shri Patil that the entire edifice of the Department's case was based on this letter. Since both the Hon'ble Members of the Tribunal did not attach any evidentiary value to such letter, there is no merit in the case of the Department.
7. Shri Patil further invited my attention on the Commentary on Income-tax by Kanga and Palkhivala at p. 1634. The learned authors discussed the law with reference to precedents. It is stated that concealment of income in the original return would attract penalty even if the assessee submits a revised return before the assessment is completed or the penalty proceedings are started. However, the original return is not the decisive factor in every, case. The section comes into operation if "in the course of any proceedings under this Act" the AO is satisfied that income has been concealed. Therefore, if the assessee, having filed a false return, makes a voluntary disclosure or files a revised return even before the AO takes up the original return for consideration, and the assessment is made on the basis of such disclosure, penalty should not be imposed.
8. Further, it was stated by learned counsel that the view taken by the AO was in the light of the decision of the apex Court rendered in the case of Sir Shadilal Sugar & General Mils Ltd. v. CIT (1987) 168 ITR 705 (SC). The Hon'ble Supreme Court in this case has held that from the mere fact of the assessee agreeing to additions, it does not foDow that the amount agreed to be added was concealment income.
9. Reliance was further placed on the decision of the apex Court rendered in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC). The Hon'ble Supreme Court in this case has held that provision of Section 263 cannot be invoked to correction and every type of mistake or error committed by the AO. Where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of Revenue, unless the view taken by the AO is unsustainable in law.
10. In the case of CIT v. Gabriel India Ltd. (1993) 203 ITR 108 (Bom), it was held that the power of suo motu revision under Section 263 is in the nature of supervisory jurisdiction and can be exercised only if the circumstances must exist to enable the CIT to exercise the power of revision under the sub-section, viz., (i) the order should be erroneous; and''(ii) by virtue of the order being erroneous prejudice must have been caused to the interests of the Revenue. An order cannot be termed as erroneous unless it is not in accordance with law. The conclusion of AO cannot be terrified to be erroneous simply because the GIT does not feel satisfied with the conclusion.
11. I have taken into consideration the entire conspectus of the facts.
I find that the learned JM differed only on two aspects. Thus two aspects are not germane to the main issue. The CIT also did not revise order of the AO on these aspects. It is not necessary to go into the controversy that whether return filed by the assessee was a revised return or return in compliance with notice under Section 148. Both the parties agreed that the AO did not consider the said return as non est return. The assessment was completed on the basis of this return only.
It is a fact that the return was filed prior to the issuance of notice under Section 148. The assessee made a request to regularise the return by issuance of notice under Section 148. Notice in conformity with the request was issued. Return was regularised. The bedrock of the addition was the letter,'dt. 8th Sept., 1990. This letter was not placed before the Tribunal. Both the learned Members agreed that this could not be accepted as an evidence.
12. The view taken by the AO was a possible view. The assessee made reply in response to notice under Section 271(1)(c). The return was stated to be filed in good faith. Full and complete disclosure of the income was made in the said return. It was filed before the Issuance of the notice un'der Section 148. It was also noticed that the assessee co-operated in the assessment proceedings and had paid all the taxes before filing the return. Concealment was not detected. The AO considered the various decisions cited before him. He took a view in the light of the representation and decisions relied upon. Ex consequenti he dropped the penalty proceedings. The office Note is reproduced by the learned AM wherein the factum of written explanation and consideration of various decisions of Supreme Court is mentioned by the AO. The ambit of interference under Section 263 is not to set aside merely unfavourable orders and bring to tax some more money to the treasury. The section is not enacted to get a sheer escapement of revenue which is taken care of by other provisions in the Act.
Prejudice that is contemplated under Section 263 is prejudice to the income-tax administration as a whole. Section 263 is to be invoked not as a jurisdictional corrective or as a review of a subordinate's order, in exercise of the supervisory power, but it is to be invoked and employed only for setting right distortions and prejudices to the Revenue which is a unique conception which has to be understood in the context of and in the interest of Revenue administration 13. I have carefully perused the text and context of the various precedents referred before me at the time of hearing. I have also gone through the orders of the learned Members. In my opinion, conditions precedent for assuming jurisdiction under Section 263 did not exist in the facts and circumstances of the present case. I am, therefore, inclined to agree with the conclusion of learned AM.14. I now direct the Registry to place these appeals before the Bench for consequential order, in accordance with the majority view.
1. As there was a difference of opinion between the AM and the JM, the following question was referred to a TM : "Whether, on the facts and in the circumstances of the case, the CIT is justified in setting the orders of the AO relating to the asst.
yrs. 1985-86 to 1989-90 under Section 263 of the IT Act, 1961 ?" 2. The learned Vice-President (JM) Shri M.K. Chaturvedi, sitting as TM vide his opinion, dt. 7th Dec., 2001, has concurred with the views of the AM and has answered the question in the negative. In accordance with the majority view, the issue stands decided in favour of the assessee and against the Revenue.