M/S M.sajjanraj Nahar & Family v. The Commissioner Of Income Tax Coimbatore

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 1.2.2006 CORAM: THE HONOURABLE MR.JUSTICE P.D.DINAKARAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.Nos.112, 174, 175, 194, 201 to 204 of 2000(Reference Nos 65,119,120,139,146 to 149 of 2000) T.C.No.112 of 2000 1. M/s M.Sajjanraj Nahar 2. M/s M.Sajjanraj Nahar & Sons 277, Main Road, Mettupalayam 3. M/s M.Sajjanraj Nahar & Family 277, Main Road, Mettupalayam .. Applicants in all TC., Vs The Commissioner of Income TaxCoimbatore. .. Respondent in all TCs and batch cases. PRAYER: Tax case references under Section 256(2) of the Income Tax Act1961 against the order of the Income Tax Appellate Tribunal, Madras Bench'B', Chennai dated 25.9.1997 R.A.Nos.774 to 781/Mds/97 in I.T.A.No.878,879, 880 and 909 to 913/Mds/1991 for the assessment years 1982-83, 1985-86, 1986-87 and 1987-88 against the order of the Commissioner of IncomeTax (Appeals) Coimbatore dated 26.2.1991 and made in I.T.Appeal No.594-c/90-91, 591-c, 599-c/90-91, 597-c & 598-c/90-91, 590-c, 585-c/90-91, 584-c/90-91 respectively against the order of the Assistant Commissioner ofIncome Tax, company circle II (1), Coimbatore, dated 9-3-1990 and made inNo. ------47021HX5298 47021PY2856 https://hcservices.ecourts.gov.in/hcservices/ ---4511PV2040 com.cir.II (1)/Cbe-1987-88 respectively For Applicants :Mr.J.BalachanderFor Respondent :Mr.N.MuralikumaranSenior Standing Counselfor Income Tax JUDGMENT (Delivered by P.D.DINAKARAN,J.) Pursuant to the directions of this court dated 3.8.1999 in T.C.P.Nos. 101 to 108 of 1999, the Appellate Tribunal has stated the case andreferred to us the following questions of law: (i) Whether on the facts and in the circumstances of the case theTribunal was correct in law in sustaining the levy of penalty underSection 271(1)(c) of the Income Tax Act? (ii) Whether on the facts and in the circumstances of the case, theTribunal has any material to hold that the assessee in filing therevised return of income has not acted bonafide? and (iii) Whether on the facts and in the circumstances of the case theTribunal was correct in holding that the levy of penalty isjustifiable merely for the reason that no reasons were furnished bythe assessee for filing an upward revision of income in the revisedreturn of income? 2. The brief facts of the case are narrated as follows: 2.1. The case of all the assessees under reference is, admittedly,identical and therefore, the case of M/s.Sajjanraj Nahar & Sons is statedas a benchmark. 2.2. The assessee was carrying on the business in financing and hirepurchase of vehicles. A return was filed on 28.7.1987 declaring taxableincome of Rs.88,010/- which was arrived at after deducting a sum ofRs.61,200/- in respect of the interest paid on loans obtained fromdifferent parties in the earlier assessment years. https://hcservices.ecourts.gov.in/hcservices/ 2.3. After completing the assessment under Section 143(1) of the Act,the Assessing Officer reopened the case and issued a notice under Section143(2) of the Act, and in response to the said notice the assesseeappeared with the books of accounts and submitted a revised return on18.1.1988 declaring total income of Rs.1,49,210/- which was arrived atafter showing a further sum of Rs.61,200/- to Rs.88,010/- originallydeclared. 2.4. The Assessing Officer accepted the income returned in therevised return and completed the assessment in a sum of Rs.1,49,210/-. Ineach of the assessment orders even dated 9.3.1990, the Assessing Officerhad made the following indication: "Penalty proceedings are initiated separately under Section 271(1) (c) and 273 (2)(a)" 2.5. Pursuant to the said assessment orders even dated 9.3.1990, theAssessing Officer initiated penalty proceedings under Sections 271(1)(c)and 273(2)(a) of the Income Tax Act, as proposed and called forexplanation from the assessee. 2.4. The Assessing Officer accepted the income returned in therevised return and completed the assessment in a sum of Rs.1,49,210/-. Ineach of the assessment orders even dated 9.3.1990, the Assessing Officerhad made the following indication: "Penalty proceedings are initiated separately under Section 271(1) (c) and 273 (2)(a)" 2.5. Pursuant to the said assessment orders even dated 9.3.1990, theAssessing Officer initiated penalty proceedings under Sections 271(1)(c)and 273(2)(a) of the Income Tax Act, as proposed and called forexplanation from the assessee. 2.6. Even after the receipt of the notice issued under Section 271(1)(c) of the Act, the assessee instead of offering explanation to the saidnotice, had stated that a petition under Section 273A of the Act had beenmade to the Commissioner of Income Tax and therefore, requested for a stayof all further penalty proceedings initiated already. As no otherexplanation was offered by the assessee, except as stated above, theAssessing Officer, by orders even dated 25.9.1990, came to the conclusionthat the assessee had deliberately concealed the particulars of its incomeby introducing its own income as credits in fictitious names in the booksof accounts and also claimed bogus payment of interest as expenditure, andissued demand notices for penalty from the respective assessees. 2.7. It is apparent on the face of the respective orders even dated25.9.1990 issued under Section 271(1)(c) of the Act that the assessee, onlearning that during the search operation at Madras on 25.6.1985 at thepremises of some other persons dealing with hawala transactions, hadintroduced bogus credits in the books of accounts and filed revised returnon 18.1.1988 disclosing additional income being bogus credits and intereston bogus credits. It is further alleged in the said orders even dated25.9.1990 that the assessee had deliberately and with due knowledge andintention to defraud the Revenue had credited his own cash outside thebooks in fictitious names and also claimed payment of interest thereon anddid not disclose the correct income in his return filed on 28.7.1987. 2.8. In the meanwhile, the assessees also preferred appeals againstthe assessment orders before the Commissioner of Income Tax (Appeals),who, by order dated 26.2.1991, allowed the appeals following the decision 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. (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 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. 4.1.3. 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, 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 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 ; 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,-- (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- 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- 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. (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) Section: 28 of the Income Tax Act, 1922 Section: 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, (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) 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 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 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) 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: (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) . 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. ... 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: ... 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 bef