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| DATE: | July 19, 2012 (Date of publication) |
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| Click here to download the judgement (global_green_271_1_c_penalty.pdf) |
S. 271(1)(c) penalty not valid if “satisfaction” not recorded in the assessment order
The AO passed an order u/s 143(3) in which he took the view that the assessee had wrongly claimed deduction for a provision made towards non-saleable goods. This was upheld by the CIT(A) & the Tribunal. The AO also imposed penalty u/s 271(1)(c) for concealment / furnishing of inaccurate particulars of income. The CIT (A) upheld it. Before the Tribunal, the assessee argued that penalty was not imposable because (a) in the assessment order, the AO had not recorded a finding that there was concealment/ furnishing of inaccurate particulars of income and so there was no “satisfaction” and (b) there was no finding in the quantum order that the assessee’s claim was not bona fide and so penalty was not imposable. HELD upholding the assessee’s plea:
(i) Despite the insertion of sub-section (1B) to s. 271, the necessity for “prima facie satisfaction” for initiation of penalty proceedings continues to be a jurisdictional fact. The AO has to record the finding that there was concealment of income. In the s. 143(3) assessment order, the AO has not mentioned a word that there was furnishing of inaccurate particulars or concealment of income. He made the addition merely on the ground that the assessee was not able to produce any evidence for writing off of the amount in the books of account. As the satisfaction that the assessee had concealed income or furnished inaccurate particulars of such income is not discernible from the assessment order, the penalty order suffers from lack of jurisdiction to impose penalty (Madhu Shree Gupta 317 ITR 107 (Del) followed);
(ii) It is settled law that assessment proceedings and penalty proceedings are separate proceedings and findings arrived at in quantum appeal may have persuasive value but are not conclusive for levying penalty. In the quantum appeal there was no finding of the Tribunal that the assessee’s claim was not bona fide or that there was any fraud or gross or willful neglect on its part;
(iii) Penalty should ordinarily not be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty should not be imposed merely because it is lawful to do so. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. On facts, the assessee’s act of writing off un-saleable goods cannot be said to be not bona fide and it cannot be said to be furnishing of inaccurate particulars of income.
As rightly pleaded by the assessee, the claim is for deduction of the ‘loss’, as reflected in its books of account, by way of revaluation of the specific items of stock. The AO has not taken the stand that the books of account are not reliable or been manipulated.
On the contrary, he has simplistically started, and further proceeded, on a wrong premise that the claim is for deduction of a ‘provision for unascertained liability’. In one’s conviction, no accountant or tax professional should take time to readily be convinced that by doing so the AO’s abject ignorance of even fundamental principles of accounting is self-evident; and has come to be sadly betrayed.
One is not clear at all, rather is non-plussed, being in no position to find any logic or reason out why the tax payer had no case to succeed, firstly in the quantum appeal itself. Unless the AO had strong reasons to believe and also established / proved that this was a case where assessee had deliberately suppressed the disputed stock (taken out of physical stock , so also removed from the books of account ) but fraudulently made income by surreptiously selling it . That, in any case, is not the stand taken by the AO even remotely. On the record, there seems to have been no material whatsoever, even for the AO to take any such extreme stand. The fact remains that , in fact, he has not even made an attempt to pitch his disallowance on any such ground.
In these circumstances, the final result of the proceedings, that is assessee’s failure to succeed in the quantum appeal itself, does not seem to appeal to one’s common sense; more so, makes no legal sense.
The discussion herein above, is simply intended to clarifying one’s own thoughts ; albeit, incidentally, with a view to provoking others, truly and equally concerned, to accord usefully independent thoughts; even it be by way of testing own knowledge or viewpoints.
Over to the active professionals, CAs or lawyers, to be open and share their own reaction, for the benefit of taxpaying community in general.; not to mention the indirect ‘benefit’ the Revenue may happen to derive.
Rider:
From the discussion above, it is to be appreciated,two important aspects emerge:
1. The need for he asseesing ofiicer to be sufficiently trained so that he is equipped with reasonably fair knowlege of accounting principles applied , and their true significance, in the preparation of final accounts of a ‘business’.
2. A nagging doubt whether the decision in quantum appeal could have turned out to be different and in favour, had the crucial points havng a bearing on the issue, touched upon very briefly herein, been sufficiently stressed and urged, and forcefully driven home, in the assessment and further proceedings.
The first mentiined aspect, of course, the Executive has to address itself to, in the interests of, besides taxpayers, the Revenue itself.
The comments made are puely personal, having the sole aim of propogation of ideas to subserve / help in promoting public interest.