Delhi H.C : Penalty proceedings under s. 271(1)(c) for furnishing inaccurate particulars of income and under s. 271D for accepting the loan of Rs. 30,000 in cash in violation of the provisions of s. 269SS have been initiated separately.

Counsel Appeared : Anoop Sharma, for the Petitioner : Sanjeev Khanna with Ajay Jha, for the Respondents

JUDGMENT

R.C. LAHOTI, J. :

This common order shall govern the disposal of CWP Nos. 3868, 3869 and 3870 of 1997, between the same parties.

2. The assessee derives income from manufacture of high class polypropylene and polythene tubing films and bags. For the asst. yr. 1991-92 return of income was filed on 29th Jan., 1991, declaring income of Rs. 29,910. During the course of assessment proceedings, it was noticed, inter alia, that R.R. Jindal had advanced a loan in cash totalling to Rs. 30,000 to the assessee. The assessee was confronted with the provisions of s. 269SS(b) of the IT Act, 1961, whereupon he surrendered the said amount to be treated as income of the previous year. The AO accepted the surrender as income of the assessee. The interest paid by the assessee on the loan of Rs. 30,000 at 10 per cent per annum was also disallowed and added back to the income of the assessee. By order of assessment dt. 31st Aug., 1992, the AO also directed as under : “Penalty proceedings under s. 271(1)(c) for furnishing inaccurate particulars of income and under s. 271D for accepting the loan of Rs. 30,000 in cash in violation of the provisions of s. 269SS have been initiated separately.” The assessee went in revision against the order of assessment challenging the quantum of income fixed by the AO. The revision was dismissed by order dt. 20th Oct., 1994. The order of assessment and the order dismissing the revision petition filed by the assessee are the subject-matter of CWP No. 3870 of 1997.

3. Notice under s. 271(1)(c) calling upon the petitioner-assessee to show cause why the penalty be not levied on him was issued to him. In response to this show-cause notice the assessee did not offer any explanation though ample opportunity was allowed for the purpose. The AO formed an opinion that as the assessee had noexplanation to offer for not disclosing the correct income, the assessee had concealed the particulars of his income and furnished inaccurate particulars leading to the addition of Rs. 30,000. A penalty of Rs. 31,586 equal to 200 per cent of the tax sought to be evaded was levied on the assessee vide order dt. 5th March, 1993. As against this order, the petitioner preferred a revision under s. 264 of the Act which had been dismissed by order dt. 21st Oct., 1994. The order of penalty under s. 271(1)(c) and the order rejecting the revision petition thereagainst are the subject-matter of CWP No. 3869 of 1997. Notice under s. 271D was also issued to the petitioner. The petitioner filed a reply submitting that the loan having been surrendered as income, he was not liable to penalty. A penalty of Rs. 30,000 was imposed on the petitioner by order dt. 26th March, 1993. The petitioner preferred a revision against the said order which has been dismissed by order dt. 20th Oct., 1994. Penalty order under s. 271D of the Act and the order dismissing the revision thereagainst are the subject-matter of CWP No. 3868 of 1997. So far as C.W.P. No. 3870 of 1997 is concerned, after hearing learned counsel for the parties we are of the opinion that no fault can be found with the impugned orders. The assessee had himself surrendered the amount to be treated as income and, therefore, the AO was fully justified in treating the amount of loan as initially claimed and interest claimed to have been paid thereon as income. This petition is liable to be dismissed. As to penalty under s. 271(1)(c) and under s. 271D the common submission raised by learned counsel for the petitioner is based on the record of the proceedings. It is submitted that a letter is available on the record of the AO which is signed by the assessee’s counsel and addressed to the AO reading as under : “Reg : Dewan Enterprises, WZ-18, Hari Singh Park, Delhi, Sir, Reference, discussion, the undersigned on behalf of the above assessee and to buy peace, hereby surrenders an amount of Rs. 28,000 on account or drawings of Smt. Roshni Devi and Rs. 32,000 on account of drawing of Shri Roshan Lal and further agrees to the addition of cash loans raised by the firm from Shri R.R. Jindal of Rs. 30,000 (rupees thirty thousand only) subject to no imposition of penalty and interest.”

6. It is submitted by learned counsel for the petitioner that the AO had directed Shri R.R. Jindal to be produced along with his account books for verifying the correctness of the loan claimed to have been taken from him by the assessee. The assessee did not wish to be lodged into any controversy and probably the queries might also have invited some trouble for Jindal and hence was reluctant to appear before the AO. The assessee thought of and was also advised to surrender the income which he did subject to the condition that no penalty and interest would be levied on him. The surrender having been accompanied by a condition accepted by the AO, and in any case which would be deemed to have been accepted, no penalty was leviable. Learned standing counsel for the Revenue has pointed out that the AO had never accepted any condition accompanying the surrender, rather it was unconditional as is reflected by the order sheet dt. 25th Aug., 1992, which does not make any mention of any written letter or communication by or on behalf of the assessee and simply records : “Present Mr. S.K. Garg asked to show cause why addition be not made on low drawings, produce the persons and bank pass books. He was asked to show cause as to why the loan amount of Rs. 30,000 taken at different times in cash be not added in the income of the previous year under s. 269SS. He agreed to surrender an amount of Rs. 60,000 on account of drawing and Rs. 30,000, on account of cash loans. Case discussed.” Learned counsel for the petitioner placed reliance on Sir Shadilal Sugar & General Mills Ltd. vs. CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC) : TC 50R.300, 54R.289, CIT vs. Amalendu Paul (1983) 34 CTR (Cal) 174 : (1984) 145 ITR 439 (Cal) : TC 50R.226, CIT vs. Mansa Ram & Sons 1975 CTR (All) 163 : (1977) 106 ITR 307 (All) and Addl. CIT vs. Kishan Singh Chand 1975 CTR (All) 194 : (1977) 106 ITR 534 (All) : TC 50R.628 in support of the submissions that mere addition of income to the one returned by the assessee would not necessarily make out a case for levying penalty unless and until mens rea was proved. Learned senior standing counsel for the Revenue submitted that the decisions relied on by the petitioner are referable to the period prior to the substantial amendments effected in the text of s.271 of the IT Act and have, therefore, no applicability to the facts of the case at hand. He placed reliance on the recent Supreme Court judgment in Addl. CIT vs. Jeevan Lal Shah (1994) 117 CTR (SC) 130 : (1994) 205 ITR 244 (SC) : TC 50R.973. The relevant part of s. 271 reads as under : “271. (1) If the AO or the CIT(A) in the course of any proceedings under this Act, is satisfied that any person… (c) 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…… (iii) in the cases referred to in cl. (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income :

Explanation 1 : Where in respect of any facts material to the computation of the total income of any person under this Act— (A) such person fails to offer an explanation or offers an explanation which is found by the AO or the CIT(A) to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of cl. (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.”

9. The expression “furnished inaccurate particulars of such income” in cl. (c) of sub-s. (1) of s. 271 was preceded by the word “deliberately” which has been omitted by the Finance Act, 1964, w.e.f. 1st April, 1964. Expln. 1 has been inserted by the Finance Act, 1964, but substituted in the present form by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1st April, 1976. A material part of cl. (B) of Expln. 1 was added w.e.f. 10th Sept., 1986. Out of the cases relied on by learned counsel for the petitioner the Supreme Court decision in the case of Sir Shadilal Sugar & General Mills Ltd. (supra) relates to the asst. yr. 1958-59 made in the 1922 Act. Amalendu Paul’s case (supra) relates to a return filed on 28th June, 1963. Mansa Ram & Son’s case (supra) relates to the asst. yr. 1951- 52 and Kishan Singh Chand’s case (supra) relates to the asst. yr.1967-68. Pre-amendment decisions are based ons. 271 as interpreted by the Supreme Court in the case of CIT vs. Anwar Ali (1970) 76 ITR 696 (SC) : TC 50R.276 which has no applicability to the post-amendment cases.

10. In Addl. CIT vs. Jeevan Lal Shah (supra) relied on by learned senior standing counsel for the Revenue, their Lordships have held that the Explanation shifts the burden to the assessee in the situation covered by it. If he fails to establish the same, the presumption will become a finding and it would be open to the authority to levy the penalty. Their Lordships have further held : “Even after the amendment of 1964, penalty proceedings continue to be penal proceedings. Similarly, the question whether the assessee has concealed the particulars of his income continues to remain a question of fact. Where the Explanation has made a difference is while deciding that question the presumption created by it has to be applied which has the effect of shifting the burden of proof. The rule regarding burden of proof enunciated in CIT vs. Anwar Ali (1970) 76 ITR 696 (SC) : TC 50R.276, is no longer valid. Whether it is a case of undisclosed or unexplained cash deposit or any other concealment the standard is the same. The principle enunciated in Anwar Ali’s case (supra) that mere rejection of the explanation of the assessee is not sufficient for levying penalty no longer holds good and it is no longer necessary that the Department must go further and establish that there was conscious concealment of particulars of income or a deliberate failure to furnish accurate particulars. The cases to which the Explanation is attracted have to be decided in the light of the law enunciated in the cases of CIT vs. Mussadilal Ram Bharose (1987) 60 CTR (SC) 34 : (1987) 165 ITR 14 (SC) and CIT vs. K. R. Sadayappan (1990) 86 CTR (SC) 120 : (1990) 185 ITR 49 (SC).”

11. Whatever transpired during the assessment proceedings had the effect of the figure of income being enhanced by the AO. He had called upon the assessee to show cause against the proposed levy of penalty in independent proceedings whereat the assessee could have appeared and satisfied the AO of the facts and circumstances in which the assessee had surrendered the income and yet was not liable to penalty. The assessee did not even care to appear before the AO not to talk of furnishing an explanation or the same having been found untenable. We may place on record that the two Allahabad decisions, namely, in the case of Mansa Ram & Sons (supra) and in the matter of Kishan Singh Chand (supra) were cited before the Allahabad High Court itself in a later decision in Biland Ram Hargan Dass vs. CIT (1987) 66 CTR (All) 218 : (1988) 171 ITR 390 (All) : TC 50R.564, are distinguished. It was held that mere surrender or acceptance of an amount as income by the assessee at a subsequent stage is not necessarily proof of bona fide inadvertence or omission earlier. It is all a question of fact to be determined in the facts and circumstances of each case. In the case at hand it is a disputed question whether the surrender was accompanied by any condition or not and even if accompanied whether such condition was accepted by the AO. In the counter filed by the Revenue though the availability of the letter referred to in para. 6 above (p. 574) and signed by counsel for the assessee has been accepted, a doubt has been expressed on the exact date on which the letter might have been filed on the record inasmuch as it does not bear any presentation endorsement by the AO and also does not find any reference in the order sheet dt. 25th Aug., 1992, referred to in para. 7 above. We do not propose to enter into this controversy at this stage because recording of finding of fact or reappraisal thereof is not contemplated within the exercise of writ jurisdiction. The plea in this regard raised by the petitioner-assessee before us is liable to be rejected solely for the reason of his failure to appear before the AO in the penalty proceedings.

In spite of the abovesaid plea of the petitioner having been rejected, the penalty imposed under s. 271(1)(c) has still to be set aside though for a different reason and because the very foundation for initiation of the penalty proceedings is conspicuous by its absence. The opinion clause of sub-s. (1) of s. 271 itself contemplates a finding as regards satisfaction of availability of grounds under cl. (c) being recorded during the assessment proceedings. Recently, in CIT vs. Ram Commercial Enterprises Ltd. I.T.C. No. 13 of 1996, decided on 8th Oct., 1998— [reported at (2001) 167 CTR (Del) 321] following the law laid down by their Lordships of the Supreme Court in D.M. Manasvi vs. CIT 1972 CTR (SC) 437 : (1972) 86 ITR 557 (SC) : TC 49R.1199 and CIT vs. S.V. Angidi Chettiar (1962) 44 ITR 739 (SC) : TC 49R.793, we have held that unless requisite satisfaction was recorded in the proceedings under the Act, which would mean the assessment proceedings, the jurisdiction to initiate the penalty proceedings could not have been exercised. Satisfaction has to be before the issue of notice or initiation of any step for imposing penalty. In the case at hand we find the AO having nowhere recorded till the conclusion of the assessment proceedings his satisfaction that the assessee had concealed the particulars of his income or furnished inaccurate particulars of such income. This is a jurisdictional defect which cannot be cured. The initiation of the penalty proceedings was itself bad and, consequently, all the subsequent proceedings leading up to the passing of the penalty order must fail. CWP No. 3869 of 1997 is, therefore, liable to be allowed. Sec. 269SS provides, inter alia that no person shall, after 30th June, 1984, take or accept from any other person, any loan or deposit otherwise by an account payee cheque or account payee bank draft, if the amount of such loan or deposit or the aggregate thereof is Rs. 20,000 or more. Sec. 271D provides that if a person takes or accepts any loan or deposit in contravention of the provisions of s. 269SS, he shall be liable to pay, by way of penalty, sum equal to the amount of the loan or deposit so taken or accepted. The record of the proceedings shows that the AO had discarded the theory of the assessee having taken any loan. He accepted the surrender of the amount as income of the assessee. It was open to the AO not to accept the surrender, treat the amount as loan and then to hold the petitioner liable to penalty under s. 271D for non-compliance with s. 269SS. The AO cannot be permitted to treat the amount of loan as income for the purpose of assessing tax thereon while framing the assessment and at the same time to treat it as a loan for the purpose of s. 269SS r/w s. 271D and subject the transaction to penalty. Such proceedings would be self-contradictory. For non-compliance with the provisions of s.269SS, the genuineness of the transaction as loan was doubted by the AO and so the amount was surrendered by the assessee. The surrender was accepted by the AO as income of the assessee. It ceased to be a loan and, therefore, the very foundation for initiating the proceedings for and levying penalty under s. 271D was lost.

16. Sub-s. (1) of s. 271D begins with the words “if a person takes or accepts any loan or deposit”. The AO had recorded a finding that the amount of Rs. 30,000 was the income of the assessee. Impliedly he had recorded a finding that it was neither any loan nor a deposit. The question of the provisions of s. 269SS having been contravened was then lost in oblivion and could not have rearisen at any subsequent stage or in subsequent proceedings. The penalty imposed under s. 271D r/w s. 269SS cannot, therefore, be sustained. CWP No. 3868 of 1997, therefore, deserves to be allowed and the penalty deserves to be quashed. For the foregoing reasons, CWP No. 3870 of 1997 laying challenge to the quantum assessment proceedings is dismissed. CWP Nos. 3869 of 1997 and 3868 of 1997, respectively, laying challenge to penalty orders under s. 271(1)(c) and s. 271D and the orders maintaining the same in revision are allowed and the two penalties are hereby quashed and set aside. All the three petitions stand disposed of, accordingly, though without any order as to costs.

[Citation : 246 ITR 571]