Principal Commissioner Of Income Tax, (Central) Rajasthan 4[Th]Floor, Lic Building, Bhawani Singh Road, Ambedkar Circle Jaipur v. Manoj Kumar Sharma, 4-G- 20, Talwandi, Kota

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 76/2023 Principal Commissioner of Income Tax, (Central) Rajasthan 4[th]Floor, LIC Building, Bhawani Singh Road, Ambedkar Circle Jaipur. ----Appellant Versus Manoj Kumar Sharma, 4-G- 20, Talwandi, Kota- 324005(PAN/GIR No. ) ----Respondent For Appellant(s) : Mr. Siddharth Bapna withMr. Meyhul MittalFor Respondent(s): None Present HON'BLE MR. JUSTICE INDERJEET SINGH HON'BLE MR. JUSTICE MUKESH RAJPUROHIT 23/04/2025 Order Learned counsel for the appellant submits that the issueinvolved in this appeal has already been considered and decidedby the Co-ordinate Bench of this Court in the matter of Principal Commissioner of Income Tax Vs. Harish Jain (D.B. IncomeTax Appeal No.81/2023 along with connected matters)decided on03.03.2025, wherein it has been held as under:- “1.These appeals are filed under Section 260-A ofthe Income Tax Act, 1961 (for short ‘the Act’) againstthe order of the Income Tax Appellate Tribunal, Jaipur(for short ‘the tribunal’) dated 25.11.2022.2.Appeals are being decided by this order as thefacts and issues involved are similar. Forconvenience, the facts are being taken from D.B.Income Tax Appeal No.81/2023.3.The brief facts are that consequent to searchconducted on 07.09.2017 at the residential andbusiness premises of Resonance Group, Kota, noticeunder Section 153A of the Act dated 05.07.2018 wasissued to the assessee-respondent (hereinafter referred to as ‘assessee’). The assessee furnishedreturn on 18.07.2018 declaring income of Rs.15,67,000/-. The assessment was finalized vide orderdated 22.12.2019 and the income was assessed atRs. 70,67,000/-. The assessing officer (hereinafterreferred to as ‘A.O’.) recorded satisfaction forinitiating penalty proceeding under Section 271AABof the Act. 3.1The Revisional Authority vide order dated25.03.2022 directed the A.O. to initiate and levypenalty u/s 271(1)(c) of the Act, after arriving at duesatisfaction independently. In appeal of the assessee,the revisional order was set aside by the tribunal andhence, the present appeal. 3.2The appeal was admitted on 07.11.2023 onfollowing substantial questions of law:- “(i) Whether the learned ITAT has erred in law inquashing the order dated 25.03.2022 passed underSection 263 of the Income Tax Act, 1961? (ii) Whether the learned ITAT has erred in law byquashing the order under Section 263 of the IncomeTax Act, 1961 passed by the Pr. CIT by treating acase of initiation of penalty under incorrect section ofIncome Tax Act, 1961 to be a case of non-initiation ofpenalty? (iii) Whether the learned ITAT has erred in law in notappreciating that penalty proceedings had to beinitiated in the assessment order itself and furtherthe incorrect initiation of penalty by the A.O. madethe assessment order erroneous and prejudicial tothe interests of revenue?” 4.Learned counsel for the appellant submits thatin the last paragraph of the assessment order, theA.O. initiated penalty proceedings u/s 271(1)(c) ofthe Act by issuance of notice. The tribunal erred insetting aside the revisional order. Submission is thatSection 271AAB of the Act was not on the statutebook during the relevant assessment year and thesatisfaction recorded for initiating penalty u/s271AAB of the Act was erroneous. 5.Learned counsel for the assessee submits thatno satisfaction was recorded by the A.O. for initiatingpenalty proceedings u/s 271(1)(c) of the Act. 6.The issue involved is:- whether initiation ofpenalty proceedings under two sections by A.O. byrecording satisfaction for one section makes the ordererroneous and prejudicial to interest of revenue andrevisional authority can direct A.O. to initiate penaltyproceedings under other section after recordingsatisfaction? Section 271(1) of the Act is quoted below:- Failure to furnish returns, comply with notices,concealment of income, etc. 5.Learned counsel for the assessee submits thatno satisfaction was recorded by the A.O. for initiatingpenalty proceedings u/s 271(1)(c) of the Act. 6.The issue involved is:- whether initiation ofpenalty proceedings under two sections by A.O. byrecording satisfaction for one section makes the ordererroneous and prejudicial to interest of revenue andrevisional authority can direct A.O. to initiate penaltyproceedings under other section after recordingsatisfaction? Section 271(1) of the Act is quoted below:- Failure to furnish returns, comply with notices,concealment of income, etc. 271.(1) If the [Assessing] Officer or theCommissioner(Appeals)or the Commissioner in the course of anyproceedings under this Act, is satisfied that any person:-(a) Omitted(b) has failed to comply with a notice under sub-section (2) ofsection 115WD or under sub-section (2) of section 115WEorunder sub-section (1) of section 142or sub-section (2) of section143[or fails to comply with a direction issued under sub-section (2A) of section 142], or (c) has concealed the particulars of his income or furnishedinaccurate particulars of such income, or (d) has concealed the particulars of the fringe benefits orfurnished inaccurate particularsof such fringe benefits,he may direct that such person shall pay by way of penalty:- (i)Omitted(ii) in the cases referred to in clause (b), in addition to tax, ifany, payable by him, a sum of ten thousand rupees for eachsuch failure; (iii) in the cases referred to in clause (c)or clause (d),inaddition to tax, if any, payable by him, a sum which shall notbe less than, but which shall not exceed three times, theamount of tax sought to be evaded by reason of theconcealment of particulars of his income or fringe benefits orthe furnishing of inaccurate particulars of such income or fringebenefits. xxx xxx xxx 7.The assessment for A.Y. 2012-13 was finalizedby making an addition of Rs.55 lacs. The issue ofinitiation of penalty proceeding was with regard tothis addition as no other issue was involved. The A.O.recorded satisfaction for initiating penaltyproceedings u/s 271AAB of the Act as the assesseehad offered Rs.55 lacs for taxation in the statementrecorded during the search proceedings. Relevantportion of the order is reproduced: “Since the assessee has offered Rs.55 Lacs fortaxation in his statement u/s 132(4) during searchproceeding but has not included the same amount inhis return filed u/s 153A on 18.07.2018 and not paidthe taxes, I am satisfied that the provision of section271AAB(1A) is applicable in this case. Thereforepenalty proceeding u/s 271AAB(1A) is initiatedaccordingly.” 8.In the concluding part of the order, the A.O.initiated penalty proceedings u/s 271(1)(c) of theAct. In the same para the penalty proceedings u/s271AAB of the Act were also initiated by issuance ofnotice u/s 274 of the Act. 9.Section 271 of the Act stipulates that thepenalty may be imposed by the officers mentioned insection being satisfied during the course ofproceedings that the ingredients of one of the clause(a) to (d) exist in the case. 10.The five judges Bench of the Supreme Court inthe case of Commissioner of Income Tax, Madrasand Anr. Vs. S.V.Angidi Chettfarreportedin(1962) 44 ITR 739(SC) dealing with Section 28 of the Indian Income Tax Act, 1922 (which is para-materia to Section 271 of the Act) held thatsatisfaction of the officer has to be during course ofthe proceedings and it cannot be arrived at after theconclusion of proceedings:- The relevant para is quoted below:- 9.Section 271 of the Act stipulates that thepenalty may be imposed by the officers mentioned insection being satisfied during the course ofproceedings that the ingredients of one of the clause(a) to (d) exist in the case. 10.The five judges Bench of the Supreme Court inthe case of Commissioner of Income Tax, Madrasand Anr. Vs. S.V.Angidi Chettfarreportedin(1962) 44 ITR 739(SC) dealing with Section 28 of the Indian Income Tax Act, 1922 (which is para-materia to Section 271 of the Act) held thatsatisfaction of the officer has to be during course ofthe proceedings and it cannot be arrived at after theconclusion of proceedings:- The relevant para is quoted below:- “The power to impose penalty under Section 28depends upon satisfaction of the Income Tax Officerin the course of the proceedings under the Act; itcannot be exercised if he is not satisfied about theexistence of conditions specified in clauses (a), (b) or(c) before the proceedings are concluded. Theproceedings to levy penalty has, however, not to becommenced by the Income Tax Officer before thecompletion of assessment proceedings by the IncomeTax Officer. Satisfaction before conclusion of theproceedings under the Act, and not the issue of thenotice or initiation of any step for imposing penalty isa condition for the exercise of the jurisdiction. 11.The decision of Commissioner of IncomeTax, Madras and Anr. Vs. S.V.Angidi Chettfar(supra) was relied upon by the Supreme Court inD.M. Manasvi Vs. Commissioner of Income Tax,Gujarat, II Ahmedabad reported in (1972) 86ITR 557(SC). 12.In Additional Commissioner of Income Tax.Vs. J.K.D.’ Costa reported in (1982) 133 ITR 7,the Delhi High Court held that the assessment andpenalty are two independent proceedings. In revisionthe assessment proceedings cannot be expanded tobring penalty proceedings within ambit ofassessment. The failure of the A.O. to recordsatisfaction for levying of penalty in the assessmentorder shall not make it erroneous to be prejudicial tothe interest of revenue. The SLP against order of theDelhi High Court was dismissed. 13.The Division Bench of the Punjab and HaryanaHigh Court in Commissioner of Income Tax vs.Rakesh Nain Trivedi reported in (2016) 282 CTR(P&H) 205, while considering the issue as towhether the revisional authority on failure of the A.O.to initiate penalty proceedings during the assessmentproceedings can held it to be erroneous to beprejudicial to the interest of revenue. Agreeing withthe various decisions of High Courts i.e. :-Commissioner of Income Tax v. Subhash Kumar Jain(2011) 335 ITR 364 the Punjab and Haryana HighCourt, Delhi High Court in Additional CIT v.J.K.D.'Costa (1982) 133 ITR 7 (Del), Commissioner ofIncome Tax v. Sudershan Talkies (1993) 201 ITR 289(Del) and Commissioner of Income Tax v. NihalChand Rekyan (2000) 242 ITR 45 (Del),Commissioner of Income Tax v. Keshrimal Parasmal (1986) 157 ITR 484 (Raj), Commissioner of IncomeTax v. Linotype & Machinery Ltd. (1991) 192 ITR 337(Cal) and Surendra Prasad Singh and others v.Commissioner of Income Tax (1988) 173 ITR 510(Gau.) and dissenting with the diametrically oppositeapproach of Madhya Pradesh High Court in AdditionalCommissioner of Income Tax v. IndianPharmaceuticals (1980) 123 ITR 874 (MP), AdditionalCommissioner of Income Tax v. Kantilal Jain (1980)125 ITR 373 (MP) and Addl. CWT v. NathoolalBalaram (1980) 125 ITR 596 (MP) held that initiationof revisional proceedings was not justified. (1986) 157 ITR 484 (Raj), Commissioner of IncomeTax v. Linotype & Machinery Ltd. (1991) 192 ITR 337(Cal) and Surendra Prasad Singh and others v.Commissioner of Income Tax (1988) 173 ITR 510(Gau.) and dissenting with the diametrically oppositeapproach of Madhya Pradesh High Court in AdditionalCommissioner of Income Tax v. IndianPharmaceuticals (1980) 123 ITR 874 (MP), AdditionalCommissioner of Income Tax v. Kantilal Jain (1980)125 ITR 373 (MP) and Addl. CWT v. NathoolalBalaram (1980) 125 ITR 596 (MP) held that initiationof revisional proceedings was not justified. 14.The Delhi High Court in Commissioner ofIncome Tax Vs. Super Metal Re-Rollers (P.) Ltd.reported in (2004) 265 ITR 82 (Delhi); Commissionerof Income Tax Vs. Ram Commercial Enterprises Ltd.reported in (2000) 246 ITR 568 (Delhi) relyingupon the Supreme Court decision in D.M. Manasvi(supra) held that initiation of penalty proceedingscannot be equated for the requisite of recordingsatisfaction by the A.O. in assessment order forinitiation of penalty proceedings. Satisfaction has tobe spelt out in the order of the A.O. 15.The Supreme Court in Commissioner ofIncome Tax vs. Jai Laxmi Rice Mills reported in(2015) 379 ITR 521 (SC) held that satisfactionrecorded for penalty proceedings u/s 271 (1) (c) ofthe Act cannot be the basis to start penaltyproceedings under Section 271(E) of the Act and thepenalty proceedings were quashed. 16.From Section 271(1)(c) of the Act and the rulingcited above, the legal position emerges:- (i)the satisfaction of the A.O. that the mattersmentioned in Clause (a) to (d) of Section 271 of theAct subsist, is to be recorded during course of theproceedings; (ii) the assessment and penalty are separateproceedings; (iii) the recording of the satisfaction has to beduring course of the proceedings though the noticecan be issued during or after the proceedings; (iv)once the satisfaction is recorded, the penaltycan be imposed after conclusion of the proceedingsbut within the limitation provided under Section 275of the Act; (v)the initiation of penalty proceedings by the A.O.during the proceedings is not a substitute forrecording of the satisfaction in the order; (vi)the assessment order cannot be held to beerroneous and prejudicial to the interest of therevenue for non recording of the satisfaction by theA.O. to initiate the penalty proceedings; and (vii) the satisfaction has to be of specific provisionsand penalty proceedings cannot be initiated under adifferent provision for which no satisfaction wasrecorded.17.In the present case, the A.O. recordedsatisfaction for initiating penalty proceedings underSection 271AAB of the Act and initiated proceedingsboth under 271AAB and 271(1)(c) of the Act. Thepenalty proceedings under Section 271(1)(c) of theAct were vitiated for non recording of the satisfactionby the A.O. during the course of the assessmentproceedings. It is a case of non recording ofsatisfaction u/s 271(1)(c) of the Act and not case ofwrong mentioning of section as A.O. initiatedproceedings under both the sections but recordedsatisfaction for one section.18.Accordingly, the revisional order directing A.O.to initiate penalty proceedings u/s 271(1)(c) of theAct by recording independent satisfaction is notjustified as reasons cannot be recorded afterculmination of proceedings.19.The order of the tribunal quashing the order ofthe revisional authority is upheld. The substantialquestion of law answered against the revenue. Theappeals are dismissed.” In that view of the matter, this appeal is dismissed, in viewof the judgment passed by the Co-ordinate Bench of this court inthe matter of Principal Commissioner of Income Tax (supra). (MUKESH RAJPUROHIT),J(INDERJEET SINGH),J GARIMA /138