Tax case references under Section 256(2) of the Income v. N.Muralikumaran Senior Standing Counselfor Income Tax JUDGMENT

of the Apex Court in Sir Shadilal Sugar and General Mills Ltd. v. CIT,[1987] 168 ITR 705.2.9. The said order of the Commissioner of Income Tax (Appeals) dated26.2.1991 was appealed before the Tribunal by the Revenue. The Tribunal,by order dated 25.9.1997, set aside the order of the Commissioner ofIncome Tax (Appeals) disagreeing with the contention of the assessee thatthe filing of revised return voluntarily, without any detection ofconcealed income, exonerates the assessee from the penal consequences ofSection 271(1)(c) of the Act. The Tribunal, in detail discussed the factsand circumstances of the cases, the conduct of the assessee and came tothe conclusion that:(i)the assessee did not act bonafide and honestly in returning thecorrect income originally;(ii)the filing of the revised return offering additional income byway of adding interest expenditure cannot be considered asbonafide act; and (iii)the Assessing Officer was fully justified in initiating andthereafter, levying penalty under Section 271(1)(c) of the Act,after calling for explanation from the respective assessees, asthe assessees failed to offer any convincing explanation.Hence, these references.3.1.1. Mr.J.Balachander, learned counsel for the applicants contendsthat the Tribunal erred in setting aside the well-considered orders of theCommissioner of Income Tax (Appeals) following the decision of the ApexCourt in Sir Shadilal Sugar and General Mills Ltd. v. CIT, [1987] 168 ITR705, which was also followed by the Delhi High Court in (a) Commissionerof Income-tax Vs. Ram Commercial Enterprises Ltd, [2000] 246 ITR 568; and(b) Diwan Enterprises Vs. Commissioner of Income Tax and Others, [2000]246 ITR 571.3.1.2. According to the learned counsel for the applicants, since theassessment orders suffer from jurisdictional defects, which cannot becured, the consequential penalty proceedings are not sustainable in law.Elaborating his contention and deriving support from the decisions of theDelhi High Court in (a) Commissioner of Income-tax Vs. Ram CommercialEnterprises Ltd, [2000] 246 ITR 568; (b) Diwan Enterprises Vs.Commissioner of Income Tax and Others, [2000] 246 ITR 571, he submits thatthe satisfaction for initiating penal proceedings has to be before theissue of notice or initiation of any step for imposing penalty; orotherwise, the very jurisdiction to initiate penalty proceedings isquestionable and consequently all the subsequent proceedings leading up tothe passing of the penalty order must fail. In this context, it is added https://hcservices.ecourts.gov.in/hcservices/ that the Tribunal erred in sustaining the levy of penalty under Section271(1)(c) of the Act in the respective case of the assessee, as each ofthe assessee had fairly disclosed income in the revised returns supportedwith their books of accounts, which were also accepted by the AssessingOfficer without rejection.3.2. Incidentally, with regard to the second question of law, thelearned counsel for the assessee contends that the Tribunal has erred inholding that the assessee had not acted bonafide in filing the revisedreturn of income. 3.3. With regard to the third question of law, the learned counselfor the assessee contends that the Tribunal erred in justifying the levyof penalty, merely for the reason that the assessee failed to submitreasons for filing an upward revision of income in the revised return.4.1.1. Per contra, Mr.N.Muralikumaran, learned Senior StandingCounsel appearing for the Revenue, submits that the Apex Court in K.P.Madhusudhanan Vs. Commissioner of Income-tax, [2001] 251 ITR 99, takingnote of the explanation inserted to Section 271 of the Act, held that thedecision in Sir Shadilal Sugar and General Mills Ltd. v. CIT, [1987] 168ITR 705, which was relied upon by the Commissioner of Income Tax(Appeals), is no more good law.4.1.2. It is further contended that the decisions relied upon by theassessee, namely (a) Commissioner of Income-tax Vs. Ram CommercialEnterprises Ltd, [2000] 246 ITR 568; and (b) Diwan Enterprises Vs.Commissioner of Income Tax and Others, [2000] 246 ITR 571, are notapplicable to the facts and circumstances of these cases, as they are notat all related to the revised returns. 4.1.3. Inviting our attention to the ratio laid down by the ApexCourt in CIT v. S.V.Angidi Chettiar [1962] 44 ITR 739, the learned SeniorStanding Counsel for the Revenue contends that the decision in (a)Commissioner of Income-tax Vs. Ram Commercial Enterprises Ltd, [2000] 246ITR 568; and (b) Diwan Enterprises Vs. Commissioner of Income Tax andOthers, [2000] 246 ITR 571, do not hold good.4.1.4. It is also contended that the case of assessee is squarelycovered by the decision of this Court in (i)Commissioner of Income-tax Vs. Subramania Chettiar (J.K.A.), [1977] 110 ITR 602; and (ii) Raviand Co. Vs. Assistant Commissioner of Income Tax, [2004] 271 ITR 286.4.2.1. With regard to questions of law (ii) and (iii) underreference, it is contended that the said questions are purely related tothe findings rendered by the Tribunal in its order dated 25.9.1997, viz.,(i) the assessee did not act bonafide and honestly in returning thecorrect income originally; https://hcservices.ecourts.gov.in/hcservices/ (ii) the filing of the revised return offering additional income byway of adding interest expenditure cannot be considered as bonafideact; and (iii) the Assessing Officer was fully justified in initiating andthereafter, levying penalty under Section 271(1)(c) of the Act,after calling for explanation from the respective assessees, as theassessees failed to offer any convincing explanation.4.2.2. According to the learned Senior Standing counsel, since thesaid findings do not need any interference, the questions of law (ii) and(iii) raised by the learned counsel for the appellants are liable to beanswered against the assessees.5. We have given our careful consideration to the submissions of bothsides.6. Question (i): Whether on the facts and in the circumstances of thecase the Tribunal was correct in law in sustaining the levy of penaltyunder Section 271(1)(c) of the Income Tax Act?6.1. In this regard, it is apt to refer Section 271 of the Income TaxAct, 1961 and the corresponding Section of the Income Tax Act, 1922, viz.,Section 28, which read as under:Section: 271 of the Income Tax Act, 1961"Section 271. Failure to furnish returns, comply with notices,concealment of income, etc.-(1) If the Assessing Officer or the Commissioner (Appeals) or theCommissioner in the course of any proceedings under this Act, issatisfied that any person--(a) ....(b) has failed to comply with a notice under sub-section (1)of section 142 or sub-section (2) of section 143, or fails tocomply with a direction issued under sub-section (2A) of section142, or(c) has concealed the particulars of his income or furnishedinaccurate particulars of such income,he may direct that such person shall pay by way of penalty,--(i) .... https://hcservices.ecourts.gov.in/hcservices/ (ii) in the cases referred to in clause (b), in addition totax, if any, payable by him, a sum of ten thousand rupees for eachsuch failure ;(iii) in the cases referred to in clause (c), in addition totax, if any, payable by him, a sum which shall not be less than,but which shall not exceed three times, the amount of tax sought tobe evaded by reason of the concealment of particulars of his incomeor the furnishing of inaccurate particulars of such income.Explanation 1.--Where in respect of any facts material to thecomputation of the total income of any person under this Act,--(A) such person fails to offer an explanation or offers anexplanation which is found by the Assessing Officer or theCommissioner (Appeals) or the Commissioner to be false, or(B) such person offers an explanation which he is not able tosubstantiate and fails to prove that such explanation is bona fideand that all the facts relating to the same and material to thecomputation of his total income have been disclosed by him,then, the amount added or disallowed in computing the total incomeof such person as a result thereof shall, for the purposes ofclause (c) of this sub-section, be deemed to represent the incomein respect of which particulars have been concealed.Explanation 2.--Where the source of any receipt, deposit, outgoingor investment in any assessment year is claimed by any person to bean amount which had been added in computing the income or deductedin computing the loss in the assessment of such person for anyearlier assessment year or years but in respect of which no penaltyunder clause (iii) of this sub-section had been levied, that partof the amount so added or deducted in such earlier assessment yearimmediately preceding the year in which the receipt, deposit,outgoing or investment appears (such earlier assessment yearhereafter in this Explanation referred to as the first precedingyear) which is sufficient to cover the amount represented by suchreceipt, deposit or outgoing or value of such investment (suchamount or value hereafter in this Explanation referred to as theutilised amount) shall be treated as the income of the assessee,particulars of which had been concealed or inaccurate particularsof which had been furnished for the first preceding year ; andwhere the amount so added or deducted in the first preceding yearis not sufficient to cover the utilised amount, that part of theamount so added or deducted in the year immediately preceding thefirst preceding year which is sufficient to cover such part of theutilised amount as is not so covered shall be treated to be the https://hcservices.ecourts.gov.in/hcservices/ income of the assessee, particulars of which had been concealed orinaccurate particulars of which had been furnished for the yearimmediately preceding the first preceding year and so on, until theentire utilised amount is covered by the amounts so added ordeducted in such earlier assessment years.Explanation 3.--Where any person fails, without reasonable cause,to furnish within the period specified in sub-section (1) ofsection 153 a return of his income which he is required to furnishunder section 139 in respect of any assessment year commencing onor after the 1st day of April, 1989, and until the expiry of theperiod aforesaid, no notice has been issued to him under clause (i)of sub-section (1) of section 142 or section 148 and the AssessingOfficer or the Commissioner (Appeals) is satisfied that in respectof such assessment year such person has taxable income, then, suchperson shall, for the purposes of clause (c) of this sub-section,be deemed to have concealed the particulars of his income inrespect of such assessment year, notwithstanding that such personfurnishes a return of his income at any time after the expiry ofthe period aforesaid in pursuance of a notice under section 148.Explanation 4.--For the purposes of clause (iii) of this sub-section, the expression "the amount of tax sought to be evaded",--(a) in any case where the amount of income in respect of whichparticulars have been concealed or inaccurate particulars have beenfurnished has the effect of reducing the loss declared in thereturn or converting that loss into income, means the tax thatwould have been chargeable on the income in respect of whichparticulars have been concealed or inaccurate particulars have beenfurnished had such income been the total income ;(b) in any case to which Explanation 3 applies, means the taxon the total income assessed ;(c) in any other case, means the difference between the tax onthe total income assessed and the tax that would have beenchargeable had such total income been reduced by the amount ofincome in respect of which particulars have been concealed orinaccurate particulars have been furnished.Explanation 5.--Where in the course of a search under section 132,the assessee is found to be the owner of any money, bullion,jewellery or other valuable article or thing (hereafter in thisExplanation referred to as assets) and the assessee claims thatsuch assets have been acquired by him by utilising (wholly or inpart) his income,-- https://hcservices.ecourts.gov.in/hcservices/ (a) for any previous year which has ended before the date ofthe search, but the return of income for such year has not beenfurnished before the said date or, where such return has beenfurnished before the said date, such income has not been declaredtherein; or(b) for any previous year which is to end on or after the dateof the search,then, notwithstanding that such income is declared by him in anyreturn of income furnished on or after the date of the search, heshall, for the purposes of imposition of a penalty under clause (c)of sub-section (1) of this section, be deemed to have concealed theparticulars of his income or furnished inaccurate particulars ofsuch income, unless,-- (1) such income is, or the transactions resulting in suchincome are recorded,-- (i) in a case falling under clause (a), before the date ofthe search ; and (ii) in a case falling under clause (b), on or before suchdate,in the books of account, if any, maintained by him for any sourceof income or such income is otherwise disclosed to the ChiefCommissioner or Commissioner before the said date ; or(2) he, in the course of the search, makes a statement undersub-section (4) of section 132 that any money, bullion, jewelleryor other valuable article or thing found in his possession or underhis control, has been acquired out of his income which has not beendisclosed so far in his return of income to be furnished before theexpiry of time specified in sub-section (1) of section 139, andalso specifies in the statement the manner in which such income hasbeen derived and pays the tax, together with interest, if any, inrespect of such income.Explanation 6.--Where any adjustment is made in the income or lossdeclared in the return under the proviso to clause (a) of sub-section (1) of section 143 and additional tax charged under thatsection, the provisions of this sub-section shall not apply inrelation to the adjustment so made.Explanation 7.— Where in the case of an assessee who has enteredinto an international transaction defined in section 92B, anyamount is added or disallowed in computing the total income undersub-section (4) of section 92C, then, the amount so added ordisallowed shall, for the purposes of clause (c) of this sub- https://hcservices.ecourts.gov.in/hcservices/ section, be deemed to represent the income in respect of whichparticulars have been concealed or inaccurate particulars have beenfurnished, unless the assessee proves to the satisfaction of theAssessing Officer or the Commissioner (Appeals) or the Commissionerthat the price charged or paid in such transaction was computed inaccordance with the provisions contained in section 92C and in themanner prescribed under that section, in good faith and with duediligence.(1A) Where any penalty is imposable by virtue of Explanation 2 tosub-section (1), proceedings for the imposition of such penalty maybe initiated notwithstanding that any proceedings under this Act inthe course of which such penalty proceedings could have beeninitiated under sub-section (1) have been completed.(2) When the person liable to penalty is a registered firm or anunregistered firm which has been assessed under clause (b) ofsection 183 then, notwithstanding anything contained in the otherprovisions of this Act, the penalty imposable under sub-section (1)shall be the same amount as would be imposable on that firm if thatfirm were an unregistered firm.(3) ...(4) If the Assessing Officer or the Commissioner (Appeals) in thecourse of any proceedings under this Act, is satisfied that theprofits of a registered firm have been distributed otherwise thanin accordance with the shares of the partners as shown in theinstrument of partnership on the basis of which the firm has beenregistered under this Act, and that any partner has therebyreturned his income below its real amount, he may direct that suchpartner shall, in addition to the tax, if any, payable by him, payby way of penalty a sum not exceeding one and a half times theamount of tax which has been avoided, or would have been avoided ifthe income returned by such partner had been accepted as hiscorrect income; and no refund or other adjustment shall beclaimable by any other partner by reason of such direction.(5) The provisions of this section as they stood immediately beforetheir amendment by the Direct Tax Laws (Amend.) Act, 1989, shallapply to and in relation to any assessment for the assessment yearcommencing on the 1st day of April, 1988, or any earlier assessmentyear and references in this section to the other provisions of thisAct shall be construed as references to those provisions as for thetime being in force and applicable to the relevant assessment year."(emphasis supplied) https://hcservices.ecourts.gov.in/hcservices/ Section: 28 of the Income Tax Act, 1922Section: 28. Penalty for concealment of income or improperdistribution of profits.--(1) If the Income-tax Officer, the Appellate Assistant Commissioneror the Appellate Tribunal, in the course of any proceedings underthis Act, is satisfied that any person--(a) has without reasonable cause failed to furnish to returnof his total income which he was required to furnish by noticegiven under sub-section (1) or sub-section (2) of section 22 orsection 34 or has without reasonable cause failed to furnish itwithin the time allowed and in the manner required by such notice,or(b) has without reasonable cause failed to comply with anotice under sub-section (4) of section 22 or sub-section (2) ofsection 23, or(c) has concealed the particulars of his income ordeliberately furnished inaccurate particulars of such income,he or it may direct that such person shall pay by way of penalty,in the case referred to in clause (a), in addition to the amount ofthe income-tax and super-tax, if any, payable by him a sum notexceeding one and a half times that amount, and in the casesreferred to in clauses (b) and (c), in addition to any tax payableby him, a sum not exceeding one and a half times the amount of theincome-tax and super-tax, if any, which would have been avoided ifthe income as returned by such person had been accepted as thecorrect income:Provided that--(a) no penalty for failure to furnish the return of his totalincome shall be imposed on an assessee whose total income is lessthree thousand five hundred rupees unless he has been served with anotice under sub-section (2) of section 22 ;(b) where a person has failed to comply with a notice undersub-section (2) of section 22 or section 34 and proves that he hasno income liable to tax, the penalty imposable under this sub-section shall be a penalty not exceeding twenty-five rupees ;(c) no penalty shall be imposed under this sub-section uponany person assessable under section 42 as the agent of a person notresident in the taxable territories for failure to furnish thereturn required under section 22 unless a notice under sub-section(2) of that section or under section 34 has been served on him ; https://hcservices.ecourts.gov.in/hcservices/ (d) When the person liable to penalty is a registered firm oran unregistered firm which has been assessed under clause (b) ofsub-section (5) of section 23, then, notwithstanding anythingcontained in the other provisions of this Act, the amount ofincome-tax and super-tax payable by the firm itself shall be takento be an amount equal to the tax which would have been payable byan unregistered firm on an income equal to the firm's total income,and, in the cases referred to in clauses (b) and (c), the amount ofthe income-tax and super-tax which would have been avoided if theincome as returned had been accepted as the correct income, shallbe taken to be the difference between the amount of the tax whichwould have been payable by an unregistered firm on an income equalto the firm's total income and the amount of the tax payable by anunregistered firm on an income equal to the income of the firm asactually returned by the firm.(2) If the Income-tax Officer, the Appellate AssistantCommissioner, or the Appellate Tribunal, in the course of anyproceedings under this Act, is satisfied that the profits of aregistered firm have been distributed otherwise than in accordancewith the shares of the partners as shown in the instrument ofpartnership registered under this Act governing such distribution,and that any partner has thereby returned his income below its realamount, he or it may direct that such partner shall in addition tothe income-tax and super-tax, if any, payable by him by way ofpenalty a sum not exceeding one and a half times the amount ofincome-tax and super-tax which has been avoided, or would have beenavoided if the income returned by such partner had been accepted ashis correct income ; and no refund or other adjustment shall beclaimable by any other partner by reason of such direction.(3) No order shall be made under sub-section (1) or sub-section (2)unless the assessee or partner, as the case may be, has been heard,or has been given a reasonable opportunity of being heard.(4) No prosecution for an offence against this Act shall beinstituted in respect of the same facts on which a penalty has beenimposed under this section.(5) An Appellate Assistant Commissioner or the Appellate Tribunalon making an order under sub-section (1) or sub-section (2), shallforthwith send a copy of the same to the Income-tax Officer.(6) The Income-tax Officer shall not impose any penalty under thissection without the previous approval of the Inspecting AssistantCommissioner."(emphasis supplied) https://hcservices.ecourts.gov.in/hcservices/

6.2. The question of initiating penalty proceedings under Section 28(1) of the Income Tax Act, 1922 came up for consideration of the ApexCourt in CIT v. S.V.Angidi Chettiar [1962] 44 ITR 739, which is alsorelied upon by the Delhi High Court in (a) Commissioner of Income-tax Vs.Ram Commercial Enterprises Ltd, [2000] 246 ITR 568; and (b) DiwanEnterprises Vs. Commissioner of Income Tax and Others, [2000] 246 ITR 571.The Apex Court in CIT v. S.V.Angidi Chettiar [1962] 44 ITR 739, held asfollows:“The power to impose penalty under section 28 depends upon thesatisfaction of the Income-tax Officer in the course of proceedingsunder the Act ; it cannot be exercised if he is not satisfied aboutthe existence of conditions specified in clause (a), (b) or (c)before the proceedings are concluded. The proceeding to levypenalty has, however, not to be commenced by the Income-tax Officerbefore the completion of the assessment proceedings by the Income-tax Officer. Satisfaction before conclusion of the proceeding underthe Act, and not the issue of a notice or initiation of any stepfor imposing penalty is a condition for the exercise of thejurisdiction.”6.3. By placing reliance on the said decision in CIT v. S. V. AngidiChettiar [1962] 44 ITR 739, the Delhi High Court in Diwan Enterprises Vs.Commissioner of Income Tax and Others, [2000] 246 ITR 571, held thatsatisfaction has to be before the issue of notice or initiation of anystep for imposing penalty and such requisite satisfaction has to berecorded in the proceedings or otherwise, the penalty proceedingsinitiated would suffer jurisdictional defect which cannot be cured; andthat initiation of penalty proceedings are itself bad and consequently,all the subsequent proceedings leading up to the passing of penalty ordermust fail. The ratio laid down by the Apex Court in CIT v. S. V. AngidiChettiar [1962] 44 ITR 739 is also followed in CIT Vs. Vikas Promoters P.Ltd., [2005] 277 ITR 337 by the Delhi High Court.6.4. But, with respect, we are unable to agree with the viewexpressed by the Delhi High Court in (a) Commissioner of Income-tax Vs.Ram Commercial Enterprises Ltd, [2000] 246 ITR 568; (b) Diwan EnterprisesVs. Commissioner of Income Tax and Others, [2000] 246 ITR 571; and (c) CITVs. Vikas Promoters P. Ltd., [2005] 277 ITR 337, with regard to thereliance placed on the ratio laid down by the Apex Court in CIT v. S. V.Angidi Chettiar [1962] 44 ITR 739, because in the said decision, theSupreme Court also observed that:"There is no evidence on the record that the Income-tax Officerwas not satisfied in the course of the assessment proceeding thatthe firms had concealed its income. The assessment order is datedthe 10th of November, 1951, and there is an endorsement at thefoot of the assessment order by the Income-tax Officer thataction under section 28 had been taken for concealment of income https://hcservices.ecourts.gov.in/hcservices/ indicating clearly that the Income-tax Officer was satisfied inthe course of the assessment proceeding that the first hadconcealed its income."(emphasis supplied)The above observation of the Apex Court in CIT v. S. V. Angidi Chettiar[1962] 44 ITR 739, dealing with the indication of the Assessing Officer asto the proposed penalty proceedings with regard to the concealment ofincome in the course of the assessment proceedings by the Assessee, in ourconsidered opinion, was not brought to the notice of the Delhi High Courtin (a) Commissioner of Income-tax Vs. Ram Commercial Enterprises Ltd,[2000] 246 ITR 568; (b) Diwan Enterprises Vs. Commissioner of Income Taxand Others, [2000] 246 ITR 571; and (c) CIT Vs. Vikas Promoters P. Ltd.,[2005] 277 ITR 337. Therefore, the indication in the Assessment Order bythe Assessing Officer that penalty proceedings are initiated separately issuffice to prove that the Assessing Officer had satisfied himself in thecourse of the assessment proceedings that the assessee had concealed hisincome, as in the instant case.6.5. The scope and ambit of Section 28(1)(c) of the Old Act, viz.,Income Tax Act, 1922, came up for a detailed consideration in thefollowing decisions:(a) The Full Bench of this Court in Arunachalam Chettyar v.Commissioner of Income-tax [1931] 6 ITC 58 held as under:"It is argued here that the assessee discovered on the 7thJanuary, 1929, that his previous return was an inaccurateone and that he was, therefore, entitled to claim thebenefit of section 22(3) and make a revised return and asthat has been accepted no penalty can be inflicted upon himfor having concealed his income. That certainly is thecorrect statement of what an assessee is entitled to do, ifhe makes a bona fide discovery that he has made a previousincorrect return but it certainly does not apply to thefacts of this case which show clearly that the previousreturn was deliberately dishonestly made. It is seriouslyargued that, notwithstanding that fact, the assessee isstill enabled to put in a return correcting his formerinaccurate one and that he is to be absolved from liabilityto have any penalty inflicted upon him. That, it seems tome, is to put a premium on dishonesty and nowhere in theIncome-tax Act do we find any provision which does anythingof the kind. The contention that this was a discoverywithin the meaning of section 22(3) is of course futile. Asthe Income-tax Commissioner points out in his order ofreference the assessee did not discover on that day that hehad made an incorrect return because at the time when hemade his previous return he knew it was incorrect and he https://hcservices.ecourts.gov.in/hcservices/ could not at any subsequent time have discovered somethingwhich he knew at an earlier time. Under thesecircumstances, the income-tax authorities were perfectlycorrect and within their rights in inflicting the penaltyupon the assessee."(emphasis supplied)(b) Again in Ayyasami Nadar & Bros. v. Commissioner of Income-tax[1956] 30 ITR 565, this Court, while dealing with the contention ofthe assessee that the assessee had a right to submit a revisedreturn of his income - and his admission before the Income-taxOfficer should be taken as such revised return - there was noconcealment of the particulars of his income in this notionallyrevised return, held that:"We consider that there is no substance in this pointparticularly in view of the finding of the income-taxauthorities, that the admission by the assessee was madeafter the Income-tax Officer had come to know of the facts,and that in the circumstances he was forced to admit thesefacts. Even apart from this, we consider that section 28(1)(c) would be attracted if there had been a deliberateconcealment of particulars in any return, and in thecircumstances of the present case it is clear that theoriginal return did not disclose considerable portions ofthe income and the finding is that the concealment wasdeliberate."(emphasis supplied)(c) The Bombay High Court in Vadilal Ichhachand v. Commissioner ofIncome-tax [1957] 32 ITR 569, held as under:"that the return that had to be taken into account undersection 28(1)(c) of the 1922 Act was the return which ifaccepted would have avoided tax and which was not acceptedand that, therefore, the penalty had to be calculated onthe basis of the original return and the Tribunal erred inholding that the revised return subsequently filed had tobe taken into account and that the assessee was not liableto penalty."(emphasis supplied)(d) The Bombay High Court, in yet another case, viz., DayabhaiGirdharbhai v. Commissioner of Income-tax, [1957] 32 ITR 677, heldthus:"Now, Mr. Pandit on behalf of the assessee, in the firstinstance, has argued that every assessee has a right tofile a revised return under section 22, sub-section (3), https://hcservices.ecourts.gov.in/hcservices/ and if that return is in effect accepted, the earlierreturn must be treated as cancelled for all purposes and nopenalty can be imposed in respect of any concealment in theearlier return. Now, it is perfectly true that everyassessee has the right under section 22, sub-section (3),to submit a revised return if he discovers any omission orwrong statement in his original return before theassessment is made. But the omission or wrong statement maybe accidental or deliberate. Where it is accidental, noresult may ensue by reason of the omission; but where theomission is deliberate, the results of such deliberateomission cannot be got rid of merely by filing a revisedreturn."(e) Again the Madras High Court in Sivagaminatha Moopanar & Sons v.Commissioner of Income-tax, [1964] 52 ITR 591, following thedecision of the Full Bench of this Court in Arunachalam Chettyar v.Commissioner of Income-tax [1931] 6 ITC 58, and referring thedecision in Ayyaswami Nadar & Brothers v. Commissioner of Income-tax 1956] 30 ITR 565 [held as follows:"If an assessee, therefore, makes a false return knowing itto be false, the fact that he subsequently discloses thetrue particulars of income cannot prevent the applicationof the section which is intended to punish fraud orcontumacy on the part of the assessee. Indeed in such acase it would not even be open to the assessee to submit arevised return: see Arunachalam Chettyar v. Commissioner ofIncome-tax [1931] 6 ITC 58 (Mad) [FB]. The point,therefore, is not whether all the particulars were given atthe time of the return or at or before the assessment, butwhether at any time the assessee deliberately concealedparticulars or gave false particulars. That obviously is aquestion of fact. In the decision of the question certaintests are applied to find whether the suppression, etc.,was deliberate. Where for example the original return isincorrect, but the assessee voluntarily submits the correctreturn before the assessment, the Tribunal would bejustified in coming to the conclusion that there was noconcealment. This would be so even if the assessee putforward a false case after giving voluntarily theparticulars. But where the disclosure was undercircumstances which make it not a voluntary act of theassessee, there would be a justification for the findingthat there was a concealment because there was an intentionto conceal and actual concealment at the beginning, theattempt having been frustrated by other causes. It cannot,therefore, be held that wherever particulars are givenbefore the actual assessment, there would be no concealment. https://hcservices.ecourts.gov.in/hcservices/ ...It follows that, if the assessee, at the time of submittingthe original return intended to conceal a part of hisincome or deliberately gave false particulars at that time,the mere fact that he subsequently rectified the omissionby giving the full particulars would not avoid theapplicability of section 28(1)(c)."(emphasis supplied)6.6. The scope and ambit of Section 271(1)(c) of the New Act, viz.,Income Tax Act, 1961, came up for consideration in the following decisions:(a) The Gauhati High Court in F. C. Agarwal v. Commissioner ofIncome-tax, [1976] 102 ITR 408, held as follows:"If after having furnished the return the assesseediscovers that some omission has taken place or some wrongstatement has crept in in the return, he may file a revisedreturn wherein he may correct the omission or the wrongstatement made in the original return. Sub-section (5)further provides that in order to enable an assessee tofile a revised return as contemplated under sub-section (5)the omission or wrong statement that might have occurred orcrept in in the original return, must be discovered by theassessee himself. In other words, if after examining thereturn and accounts in the proceedings the discovery of theomission or wrong statement is made by the departmentalauthority and thereafter the revised return purported to beunder sub-section (5) is filed, that will not be consideredas a revised return under sub-section (5). As a propositionof law it may be correct that if a revised return ascontemplated under sub-section (5) is submitted before theassessment is made after the assessee having discoveredsome omission or some wrong statement in the originalreturn and in the revised return he makes correction of theomission or the wrong statement, a penalty proceeding forconcealment of the particulars of income or furnishinginaccurate particulars of such income as contemplated underclause (c) of sub-section (1) of section 271 may not beattracted. But, to avoid the penalty proceeding ascontemplated under section 271(1)(c) by reason ofsubmission of revised return, the revised return itselfmust be within the correct ambit and scope of sub-section(5) of section 139 of the Act. If it cannot be said that arevised return in fact does come within the correct ambitand scope of section 139(5), then immunity from section 271(1)(c) cannot be availed of by the assessee." (emphasis supplied) https://hcservices.ecourts.gov.in/hcservices/ (b) This Court in Commissioner of Income-tax Vs. SubramaniaChettiar (J.K.A.), [1977] 110 ITR 602, after referring to thedecisions in (a) Arunachalam Chettyar v. Commissioner of Income-tax[1931] 6 ITC 58; (b) Ayyasami Nadar & Bros. v. Commissioner ofIncome-tax [1956] 30 ITR 565; (c) Vadilal Ichhachand v.Commissioner of Income-tax [1957] 32 ITR 569; (d) DayabhaiGirdharbhai v. Commissioner of Income-tax, [1957] 32 ITR 677; (e)Sivagaminatha Moopanar & Sons v. Commissioner of Income-tax, [1964]52 ITR 591; and F. C. Agarwal v. Commissioner of Income-tax,[1976] 102 ITR 408, held as under:"The only other question for consideration is whether thesaid concealment will come within the scope of theprovision in section 271(1)(c) of the Act which we haveextracted already or not. The section uses the expression"has concealed the particulars of his income." It isimplicit in the word "concealed" that there has been adeliberate act on the part of the assessee. The meaning ofthe word "concealment" as found in Shorter Oxford EnglishDictionary, third edition, volume I, is as follows:"In law, the intentional suppression of truth or factknown, to the injury or prejudice of another."Consequently, there can be no doubt, with reference to thefacts stated above, that both in the first return as wellas in the second return the assessee had intentionally anddeliberately concealed the particulars of his income."..."We may also point out that the liability to penalty undersection 271(1)(c) of the Act and the filing of a revisedreturn under section 139(5) of the Act are mutuallyexclusive. Section 139(5) of the Act proceeds on the basisof omission or wrong statement which had crept into theoriginal return being inadvertent and unintentional, whilesection 271(1)(c) of the Act proceeds on the basis ofconcealment being deliberate and the furnishing ofinaccurate particulars being wilful and intentional.Consequently, if a case falls within the scope of section139(5) of the Act, there would be no chance for levy ofpenalty under section 271(1)(c) of the Act. If, on theother hand, the case does not fall within the scope ofsection 139(5) of the Act the fact that the assesseepurported to file a revised return will not absolve himfrom liability to penalty under section 271 (1)(c) of theAct, if he had concealed particulars of income ordeliberately furnished inaccurate particulars of income inthe original return already filed by him." https://hcservices.ecourts.gov.in/hcservices/ and held as under:as the assessee had intentionally and deliberatelyconcealed the particulars of his income in the first returnas well as in the second return, he cannot escape theliability to penalty under section 271(1)(c).Section 139(5) applies only to a limited category of caseswhere in the original return there was any omission or anywrong statement and not cases of concealment or falsestatements. If a case does not fall under section 139(5),the fact that the revised return was filed before anyinvestigation was started by the income-tax department willbe of no consequence.The fact that the assessee furnished the particulars beforeany detection was made by the department or not will berelevant only when the Commissioner is considering thequestion whether the minimum penalty imposable undersection 271(1) should be waived or reduced, on anapplication made by the assessee under section 271(4A), butthey are foreign to the scope of section 271(1)(c).The Tribunal was, therefore, in error in holding that therehad been no concealment of particulars of income in thepresent case."6.7. It is true, the Apex Court in Sir Shadilal Sugar and GeneralMills Ltd. v. CIT, [1987] 168 ITR 705 held that a taxpayer might agree toadditions to his income for hundred and one reasons but that by itselfwill not be sufficient to treat the amount added or surrendered as theconcealed income of that taxpayer. But, in view of the deletion of theword "deliberately" by the Amendment Act, the jurisdiction of the Revenueto initiate penalty proceedings for the concealment of the income orfurnishing inaccurate particulars by the assessee has become morestringent, of course subject to the procedure prescribed under theExplanation to Section 271(1)(c) of the Act to enable the assessee tosubmit his explanation in this regard.6.8. As rightly pointed by Mr.N.Muralikumaran, learned SeniorStanding Counsel for the Revenue, the view of the Apex Court in SirShadilal Sugar and General Mills Ltd. v. CIT, [1987] 168 ITR 705 was heldno more a good law in the decision of the Apex Court in K.P. MadhusudhananVs. Commissioner of Income-tax, [2001] 251 ITR 99, taking note of theexplanation to Section 271 of the Act, whereunder it is held as under:"Learned counsel for the assessee then drew our attention to thejudgment of this court in Sir Shadilal Sugar and General Mills Ltd.v. CIT [1987] 168 ITR 705. He submitted that the assessee had https://hcservices.ecourts.gov.in/hcservices/ agreed to the additions to his income referred to hereinabove tobuy peace and it did not follow therefrom that the amount that wasagreed to be added was concealed income. That it did not followthat the amount agreed to be added was concealed income isundoubtedly what was laid down by this court in the case of SirShadilal Sugar and General Mills Ltd. [1987] 168 ITR 705 and that,therefore, the Revenue was required to prove the mens rea of aquasi-criminal offence. But it was because of the view taken inthis and other judgments that the Explanation to section 271 wasadded. By reason of the addition of that Explanation, the viewtaken in this case can no longer be said to be applicable."6.9.1. The learned counsel for the appellant/assessee stronglyemphasises on the relevant portions of the decisions in (a) Commissionerof Income-tax Vs. Ram Commercial Enterprises Ltd, [2000] 246 ITR 568; (b)Diwan Enterprises Vs. Commissioner of Income Tax and Others, [2000] 246ITR 571; and (c) CIT Vs. Vikas Promoters P. Ltd., [2005] 277 ITR 337,referred to hereunder.6.9.2. In Commissioner of Income-tax Vs. Ram Commercial EnterprisesLtd, [2000] 246 ITR 568, it was held as follows:"A bare reading of the provisions of section 271 and the law laiddown by the Supreme Court makes it clear that it is the assessingauthority which has to form its own opinion and record itssatisfaction before initiating the penalty proceedings. Merelybecause the penalty proceedings have been initiated, it cannot beassumed that such a satisfaction was arrived at in the absence ofthe same being spelt out by the order of the assessing authority.Even at the risk of repetition we would like to state that theassessment order does not record the satisfaction as warranted bysection 271 for initiating the penalty proceedings."(emphasis supplied)6.9.3. Similarly, in Diwan Enterprises Vs. Commissioner of IncomeTax and Others, [2000] 246 ITR 571, it was held as under:"Satisfaction has to be before the issue of notice or initiation ofany step for imposing penalty. In the case at hand we find theAssessing Officer having nowhere recorded till the conclusion ofthe assessment proceedings his satisfaction that the assessee hadconcealed the particulars of his income or furnished inaccurateparticulars of such income. This is a jurisdictional defect whichcannot be cured. The initiation of the penalty proceedings wasitself bad and, consequently, all the subsequent proceedingsleading up to the passing of the penalty order must fail. C.W.P.No. 3869 of 1997 is, therefore, liable to be allowed."(emphasis supplied) https://hcservices.ecourts.gov.in/hcservices/

6.9.4. In both the decisions, the Delhi High Court, followed theobservations of the Apex Court in CIT v. S. V. Angidi Chettiar [1962] 44ITR 739. But, we have already pointed out that the decision of the ApexCourt in CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739, that a mereindication as to the initiation of the penalty proceedings separately inthe Assessment order tantamount to an indication as to the satisfaction ofthe authorities that the assessee has concealed income or furnishedinaccurate particulars, had not been brought to the notice of the DelhiHigh Court in (a) Commissioner of Income-tax Vs. Ram CommercialEnterprises Ltd, [2000] 246 ITR 568; (b) Diwan Enterprises Vs.Commissioner of Income Tax and Others, [2000] 246 ITR 571; and (c) CIT Vs.Vikas Promoters P. Ltd., [2005] 277 ITR 337. For this reason and in thelight of the law enunciated in various decisions of this Court, referredsupra, with respect, we are unable to agree with the views expressed bythe Delhi High Court in (a) Commissioner of Income-tax Vs. Ram CommercialEnterprises Ltd, [2000] 246 ITR 568; (b) Diwan Enterprises Vs.Commissioner of Income Tax and Others, [2000] 246 ITR 571; and (c) CIT Vs.Vikas Promoters P. Ltd., [2005] 277 ITR 337.7.1. The supplemental question to be answered in this regard iswhether the notice issued under explanation to Section 271(1)(c) of theAct, subsequent to the making of assessment order is a satisfactorycompliance of the procedure for initiating penalty proceedings?7.2. In this regard, it is apt to refer the decision of the ApexCourt in D.M.Manasvi Vs. C.I.T., [1972] 86 ITR 556, wherein with referenceto the scope and interpretation of Clauses (a) to (c) of Section 271(1) ofthe Act, it is held as follows:"The fact that notices were issued subsequent to the making of theassessment orders would not, in our opinion, show that there was nosatisfaction of the Income-tax Officer during the assessmentproceedings that the assessee had concealed the particulars of hisincome or had furnished incorrect particulars of such income. Whatis contemplated by clause (1) of section 271 is that the Income-taxOfficer or the Appellate Assistant Commissioner should have beensatisfied in the course of proceedings under the Act regardingmatters mentioned in the clauses of that sub-section. It is not,however, essential that notice to the person proceeded againstshould have also been issued during the course of the assessmentproceedings. Satisfaction in the very nature of things precedes theissue of notice and it would not be correct to equate thesatisfaction of the Income-tax Officer or Appellate AssistantCommissioner with the actual issue of notice. The issue of noticeis a consequence of the satisfaction of the Income-tax Officer orthe Appellate Assistant Commissioner and it would, in our opinion,be sufficient compliance with the provisions of the statute if theIncome-tax Officer or the Appellate Assistant Commissioner is https://hcservices.ecourts.gov.in/hcservices/ satisfied about the matters referred to in clauses (a) to (c) ofsub-section (1) of section 271 during the course of proceedingsunder the Act even though notice to the person proceeded againstin pursuance of that satisfaction is issued subsequently."(emphasis supplied)7.3. Then again, if the view expressed by the Apex Court in CIT v.S. V. Angidi Chettiar [1962] 44 ITR 739, viz., "there is no evidence on the record that the Income-tax Officerwas not satisfied in the course of the assessment proceeding thatthe firms had concealed its income. The assessment order is datedthe 10th of November, 1951, and there is an endorsement at thefoot of the assessment order by the Income-tax Officer that actionunder section 28 had been taken for concealment of incomeindicating clearly that the Income-tax Officer was satisfied inthe course of the assessment proceeding that the first hadconcealed its income",is interpreted in the light of the observation made by the Apex Court inD.M.Manasvi Vs. C.I.T., [1972] 86 ITR 556, referred to above, we find thatthe Assessing Officer got satisfied himself by indicating in theassessment order that "penalty proceedings are initiated separately underSection 271(1)(c) and 273 (2)(a)", particularly, when there is no evidenceon record to show that the Income Tax Officer was not satisfied in thecourse of assessment proceedings that the firm had concealed its income. 7.4. At the stage of initiating penalty proceedings, what is requiredis only a subjective satisfaction and not a finding as to the satisfactionbased on materials. Therefore, penalty proceedings can be initiated onlyafter an assessment order has been made. Therefore, passing of assessmentorder cannot be held to be a bar for initiating penalty proceedings ascontended by the learned counsel for the assessee. In other words, theacceptance of revised order itself cannot be a bar for initiating penaltyproceedings under Section 271(1)(c) of the Act against the assessee forconcealment of income. 7.5. We are fortified in this view by the decision of this Court inCommissioner of Income-tax Vs. C. Ananthan Chettiar, [2005] 273 ITR 401,wherein it is held as under:"The assessee had offered no explanation except to assert that hedisclosed the income only to buy peace with the Department and whatwas disclosed was additional income. The reason for not havingdisclosed the income earlier was not stated. Thus, the Tribunal wasnot right in holding that no penalty should be levied with https://hcservices.ecourts.gov.in/hcservices/ reference to the concealed income seized in the form of jewelleryand cash."(emphasis supplied)7.6. Under the facts and circumstances of the case, it is clear thatthe original return filed by the assessee, when compared with the revisedreturn pursuant to the notice issued under Section 143(2) of the Act formsthe basis for the satisfaction of the Assessing Officer for initiatingpenalty proceedings under Section 271(1)(c) of the Act. The AssessingOfficer, therefore, has rightly reached the satisfaction that the assesseehad concealed income in the original return by way of indicating hissatisfaction that the penalty proceedings are proposed to be initiated.7.7. In any event, it is a settled law that once the authorities havearrived at a subjective satisfaction under the facts and circumstances ofthe case, it may not be proper for this Court to enter into the merits ofthe controversy at all in the proceedings under reference, as the Tribunalhad rendered a clear finding that,(i) the assessee did not act bonafide and honestly in returning thecorrect income originally;(ii) the filing of the revised return offering additional income byway of adding interest expenditure cannot be considered as bonafideact; and (iii) the Assessing Officer was fully justified in initiating andthereafter, levying penalty under Section 271(1)(c) of the Act,after calling for explanation from the respective assessees, as theassessees failed to offer any convincing explanation,and unless it is demonstrated that such indication made by the AssessingOfficer to initiate penalty proceedings is mala fide, perverse, based onno evidence, misreading of evidence or which a reasonable man could notform or that the person concerned was not given due opportunity resultingin prejudice, the said proceedings needs no interference.7.8. Once, the scope of this Court exercising the power conferredunder Section 256(2) of the Act is limited, in our considered opinion, theother contentions advanced by the learned counsel for the assessee thatthe Tribunal had erred in setting aside the well-considered orders of theCommissioner of Income Tax (Appeals) in toto is irrelevant for thedisposal of these references. The question of law (i) is answered infavour of the Revenue. 8. Question (ii): Whether on the facts and in the circumstances ofthe case, the Tribunal has any material to hold that the assessee infiling the revised return of income has not acted bonafide? and https://hcservices.ecourts.gov.in/hcservices/ Question (iii): Whether on the facts and in the circumstances ofthe case the Tribunal was correct in holding that the levy of penalty isjustifiable merely for the reason that no reasons were furnished by theassessee for filing an upward revision of income in the revised return ofincome?8.1. As the questions of law (ii) and (iii) purely revolve aroundthe findings of the Tribunal in paragraph (7) of the order dated 25.9.1997holding that, (i) the assessee did not act bonafide and honestly in returning thecorrect income originally;(ii) the filing of the revised return offering additional income byway of adding interest expenditure cannot be considered as bonafideact; and (iii) the Assessing Officer was fully justified in initiating andthereafter, levying penalty under Section 271(1)(c) of the Act,after calling for explanation from the respective assessees, as theassessees failed to offer any convincing explanation,we find no reason to interfere with the order of the Tribunal andtherefore, the questions of law (ii) and (iii) are also answered againstthe assessee.sasiSd/Asst.Registrar/true copy/Sub Asst.RegistrarTo:1. The Assistant Registrar, Income-tax Appellate Tribunal, Rajaji Bhavan, Besant Nagar, Chennai (5 copies with records)2. The Secretary, Central Board of Direct Taxes, New Delhi ( 3 copies) https://hcservices.ecourts.gov.in/hcservices/

3. The Commissioner of Income-tax (Appeals), Coimbatore.4. The Commissioner of Income-tax, Coimbatore.5. The Assistant Commissioner & Income Tax Company Circle II (1) Coimbatore.+ One cc to Mr J.Balachander, Advocate SR 4406+ Seven cc to Mr N.Muralikumaran Senior Standing Counsel for Income Tax(SR 4206,4207,4333 to 4336 & 4338)VC(CO)CGS/10.4 T.C.Nos.112, 174, 175, 194, 201 to 204 of 2000