Principal Commissioner Of Income Tax, (Central), Rajasthan, 4Thfloor, Lic Building, Bhawani Singh Road, Ambedkar Circle, Jaipur v. Harish Jain, 2-Pa

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 81/2023 Principal Commissioner Of Income Tax, (Central), Rajasthan, 4ThFloor, Lic Building, Bhawani Singh Road, Ambedkar Circle, Jaipur ----Appellant Versus Harish Jain, 2-Pa-8, Vigyan Nagar, Kota- 324005 (Pan/gir No.Aehpj4764K) ----Respondent Connected With D.B. Income Tax Appeal No. 96/2023 Principal Commissioner Of Income Tax, (Central), Fourth Floor,Lic Building, Ambedkar Circle, Bhawani Singh Marg, Jaipur. ----Appellant Versus Manoj Kumar Sharma, 4 G 20, Talwandi, Kota- 324005 (Pan/girNo. Afops0623J) ----Respondent D.B. Income Tax Appeal No. 99/2023 The Principal Commissioner Of Income Tax, (Central) Rajasthan,4Th Floor, Lic Building, Bhawani Singh Marg, Ambedkar Circle,Jaipur ----Appellant Versus Ram Kishan Verma, 33 -A, Talwandi, Kota-324005 (Pan/gir No.-Addpk1093R). ----Respondent D.B. Income Tax Appeal No. 100/2023 Principal Commissioner Of Income Tax, Fourth Floor, Lic Building,Bhawani Singh Road, Ambedkar Circle, Jaipur. ----Appellant Versus Harish Jain, 2 Pa-8, Vigyan Nagar, Kota - 324005 (Pan/gir No.Aehpj4764K) ----Respondent D.B. Income Tax Appeal No. 101/2023 The Principal Commissioner Of Income Tax, (Central) Rajasthan,4Th Floor, Lic Building, Bhawani Singh Marg, Ambedkar Circle,Jaipur ----Appellant Versus Ram Kishan Verma, 33 -A, Talwandi, Kota-324005 (Pan/gir No-Addpk1093R). ----Respondent D.B. Income Tax Appeal No. 102/2023 The Principal Commissioner Of Income Tax, (Central) Rajasthan,4Th Floor, Lic Building, Bhawani Singh Marg, Ambedkar Circle,Jaipur ----Appellant Versus Ram Kishan Verma, 33- A, Talwandi, Kota-324005 (Pan/gir No.-Addpk1093R). ----Respondent D.B. Income Tax Appeal No. 103/2023 The Principal Commissioner Of Income Tax, (Central) Rajasthan,4Th Floor, Lic Building, Bhawani Singh Marg, Ambedkar Circle,Jaipur ----Appellant Versus Harish Jain, 2 -Pa- 8, Vigyan Nagar, Kota- 324005(Pan/gir No. -Aehpj4764K). ----Respondent For Appellant(s) : Mr. Siddharth Bapna with Mr. Meyhul MiittalMr. Sarvesh JainMr. Rahul KumarFor Respondent(s): Mr. Mahendra Gargieya with Mr. Devang Gargieya &Mr. Hemang Gargieya HON'BLE MR. JUSTICE AVNEESH JHINGAN HON'BLE MR. JUSTICE MANEESH SHARMA 03/03/2025 AVNEESH JHINGAN, J: Order 1.These appeals are filed under Section 260-A of the IncomeTax Act, 1961 (for short ‘the Act’) against the order of the IncomeTax Appellate Tribunal, Jaipur (for short ‘the tribunal’) dated25.11.2022. 2.Appeals are being decided by this order as the facts andissues involved are similar. For convenience, the facts are beingtaken from D.B. Income Tax Appeal No.81/2023. 3.The brief facts are that consequent to search conducted on07.09.2017 at the residential and business premises of ResonanceGroup, Kota, notice under Section 153A of the Act dated05.07.2018 was issued to the assessee-respondent (hereinafterreferred to as ‘assessee’). The assessee furnished return on18.07.2018 declaring income of Rs. 15,67,000/-. The assessmentwas finalized vide order dated 22.12.2019 and the income wasassessed at Rs. 70,67,000/-. The assessing officer (hereinafterreferred to as ‘A.O’.) recorded satisfaction for initiating penaltyproceeding under Section 271AAB of the Act. 3.1The Revisional Authority vide order dated 25.03.2022directed the A.O. to initiate and levy penalty u/s 271(1)(c) of theAct, after arriving at due satisfaction independently. In appeal ofthe assessee, the revisional order was set aside by the tribunaland hence, the present appeal. 3.2The appeal was admitted on 07.11.2023 on followingsubstantial 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? 3.1The Revisional Authority vide order dated 25.03.2022directed the A.O. to initiate and levy penalty u/s 271(1)(c) of theAct, after arriving at due satisfaction independently. In appeal ofthe assessee, the revisional order was set aside by the tribunaland hence, the present appeal. 3.2The appeal was admitted on 07.11.2023 on followingsubstantial 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 that in the lastparagraph of the assessment order, the A.O. initiated penaltyproceedings u/s 271(1)(c) of the Act by issuance of notice. Thetribunal erred in setting aside the revisional order. Submission isthat Section 271AAB of the Act was not on the statute book duringthe relevant assessment year and the satisfaction recorded forinitiating penalty u/s 271AAB of the Act was erroneous. 5.Learned counsel for the assessee submits that no satisfactionwas recorded by the A.O. for initiating penalty proceedingsu/s 271(1)(c) of the Act. 6.The issue involved is:- whether initiation of penaltyproceedings under two sections by A.O. by recording satisfactionfor one section makes the order erroneous and prejudicial tointerest of revenue and revisional authority can direct A.O. toinitiate penalty proceedings 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) ofsection 143[or fails to comply with a direction issued undersub-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 orfringe benefits. xxx xxx xxx 7.The assessment for A.Y. 2012-13 was finalized by making anaddition of Rs.55 lacs. The issue of initiation of penalty proceedingwas with regard to this addition as no other issue was involved.The A.O. recorded satisfaction for initiating penalty proceedingsu/s 271AAB of the Act as the assessee had offered Rs.55 lacs fortaxation in the statement recorded during the search proceedings.Relevant portion of the order is reproduced: xxx xxx xxx 7.The assessment for A.Y. 2012-13 was finalized by making anaddition of Rs.55 lacs. The issue of initiation of penalty proceedingwas with regard to this addition as no other issue was involved.The A.O. recorded satisfaction for initiating penalty proceedingsu/s 271AAB of the Act as the assessee had offered Rs.55 lacs fortaxation in the statement recorded during the search proceedings.Relevant portion 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 penaltyproceedings u/s 271(1)(c) of the Act. In the same para thepenalty proceedings u/s 271AAB of the Act were also initiated byissuance of notice u/s 274 of the Act. 9.Section 271 of the Act stipulates that the penalty may beimposed by the officers mentioned in section being satisfied duringthe course of proceedings that the ingredients of one of the clause(a) to (d) exist in the case. 10.The five judges Bench of the Supreme Court in the case ofCommissioner of Income Tax, Madras and Anr. Vs.S.V.Angidi Chettfarreportedin(1962) 44 ITR 739(SC)dealing with Section 28 of the Indian Income Tax Act, 1922 (whichis para-materia to Section 271 of the Act) held that satisfaction of the officer has to be during course of the proceedings and itcannot be arrived at after the conclusion 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 theIncome Tax Officer. Satisfaction before conclusionof the proceedings under the Act, and not the issueof the notice or initiation of any step for imposingpenalty is a condition for the exercise of thejurisdiction.” 11.The decision of Commissioner of Income Tax, Madras and Anr. Vs. S.V.Angidi Chettfar(supra) was relied upon by theSupreme Court in D.M. Manasvi Vs. Commissioner of IncomeTax, Gujarat, II Ahmedabad reported in (1972) 86 ITR557(SC). 12.In Additional Commissioner of Income Tax. Vs. J.K.D.’Costa reported in (1982) 133 ITR 7, the Delhi High Court heldthat the assessment and penalty are two independentproceedings. In revision the assessment proceedings cannot beexpanded to bring penalty proceedings within ambit ofassessment. The failure of the A.O. to record satisfaction forlevying of penalty in the assessment order shall not make it erroneous to be prejudicial to the interest of revenue. The SLPagainst order of the Delhi High Court was dismissed. 13.The Division Bench of the Punjab and Haryana High Court in and Anr. Vs. S.V.Angidi Chettfar(supra) was relied upon by theSupreme Court in D.M. Manasvi Vs. Commissioner of IncomeTax, Gujarat, II Ahmedabad reported in (1972) 86 ITR557(SC). 12.In Additional Commissioner of Income Tax. Vs. J.K.D.’Costa reported in (1982) 133 ITR 7, the Delhi High Court heldthat the assessment and penalty are two independentproceedings. In revision the assessment proceedings cannot beexpanded to bring penalty proceedings within ambit ofassessment. The failure of the A.O. to record satisfaction forlevying of penalty in the assessment order shall not make it erroneous to be prejudicial to the interest of revenue. The SLPagainst order of the Delhi High Court was dismissed. 13.The Division Bench of the Punjab and Haryana High Court in Commissioner of Income Tax vs. Rakesh Nain Trivedireported in (2016) 282 CTR (P&H) 205, while considering theissue as to whether the revisional authority on failure of the A.O.to initiate penalty proceedings during the assessment proceedingscan held it to be erroneous to be prejudicial to the interest ofrevenue. Agreeing with the various decisions of High Courts i.e. :-Commissioner of Income Tax v. Subhash Kumar Jain (2011) 335ITR 364 the Punjab and Haryana High Court, Delhi High Court inAdditional CIT v. J.K.D.'Costa (1982) 133 ITR 7 (Del),Commissioner of Income Tax v. Sudershan Talkies (1993) 201 ITR289 (Del) and Commissioner of Income Tax v. Nihal Chand Rekyan(2000) 242 ITR 45 (Del), Commissioner of Income Tax v.Keshrimal Parasmal (1986) 157 ITR 484 (Raj), Commissioner ofIncome Tax v. Linotype & Machinery Ltd. (1991) 192 ITR 337 (Cal)and Surendra Prasad Singh and others v. Commissioner of IncomeTax (1988) 173 ITR 510 (Gau.) and dissenting with thediametrically opposite approach of Madhya Pradesh High Court inAdditional Commissioner of Income Tax v. Indian Pharmaceuticals(1980) 123 ITR 874 (MP), Additional Commissioner of Income Taxv. Kantilal Jain (1980) 125 ITR 373 (MP) and Addl. CWT v.Nathoolal Balaram (1980) 125 ITR 596 (MP) held that initiation ofrevisional proceedings was not justified. 14.The Delhi High Court in Commissioner of Income Tax Vs.Super Metal Re-Rollers (P.) Ltd. reported in (2004) 265 ITR 82(Delhi); Commissioner of Income Tax Vs. Ram Commercial Enterprises Ltd. reported in (2000) 246 ITR 568 (Delhi) relyingupon the Supreme Court decision in D.M. Manasvi (supra) heldthat initiation of penalty proceedings cannot be equated for therequisite of recording satisfaction by the A.O. in assessment orderfor initiation of penalty proceedings. Satisfaction has to be speltout in the order of the A.O. 15.The Supreme Court in Commissioner of Income Tax vs. Jai Laxmi Rice Mills reported in (2015) 379 ITR 521 (SC) heldthat satisfaction recorded for penalty proceedings u/s 271 (1) (c)of the Act cannot be the basis to start penalty proceedings underSection 271(E) of the Act and the penalty proceedings werequashed. 16.From Section 271(1)(c) of the Act and the ruling cited above,the legal position emerges:- (i)the satisfaction of the A.O. that the matters mentioned inClause (a) to (d) of Section 271 of the Act subsist, is to berecorded during course of the proceedings; (ii) the assessment and penalty are separate proceedings; (iii) the recording of the satisfaction has to be during course ofthe proceedings though the notice can be issued during or afterthe proceedings; (iv)once the satisfaction is recorded, the penalty can be imposedafter conclusion of the proceedings but within the limitationprovided under Section 275 of the Act; (v)the initiation of penalty proceedings by the A.O. during theproceedings is not a substitute for recording of the satisfaction in the order; 16.From Section 271(1)(c) of the Act and the ruling cited above,the legal position emerges:- (i)the satisfaction of the A.O. that the matters mentioned inClause (a) to (d) of Section 271 of the Act subsist, is to berecorded during course of the proceedings; (ii) the assessment and penalty are separate proceedings; (iii) the recording of the satisfaction has to be during course ofthe proceedings though the notice can be issued during or afterthe proceedings; (iv)once the satisfaction is recorded, the penalty can be imposedafter conclusion of the proceedings but within the limitationprovided under Section 275 of the Act; (v)the initiation of penalty proceedings by the A.O. during theproceedings is not a substitute for recording of the satisfaction in the order; (vi)the assessment order cannot be held to be erroneous andprejudicial to the interest of the revenue for non recording of thesatisfaction by the A.O. to initiate the penalty proceedings; and(vii) the satisfaction has to be of specific provisions and penaltyproceedings cannot be initiated under a different provision forwhich no satisfaction was recorded. 17.In the present case, the A.O. recorded satisfaction forinitiating penalty proceedings under Section 271AAB of the Actand initiated proceedings both under 271AAB and 271(1)(c) of theAct. The penalty proceedings under Section 271(1)(c) of the Actwere vitiated for non recording of the satisfaction by the A.O.during the course of the assessment proceedings. It is a case ofnon recording of satisfaction u/s 271(1)(c) of the Act and not caseof wrong mentioning of section as A.O. initiated proceedings underboth the sections but recorded satisfaction for one section. 18.Accordingly, the revisional order directing A.O. to initiatepenalty proceedings u/s 271(1)(c) of the Act by recordingindependent satisfaction is not justified as reasons cannot berecorded after culmination of proceedings. 19.The order of the tribunal quashing the order of the revisionalauthority is upheld. The substantial question of law answeredagainst the revenue. The appeals are dismissed. (MANEESH SHARMA),J (AVNEESH JHINGAN),J Simple Kumawat/ Riya/ 39-45