Hybrid Rice International Pvt. Ltd, V. DCIT Circle 12 (1),

ITA 285/DEL/2007

• Counselvise Citation: 28520114 RSA 2007
• Duration Of Justice: 7 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 24-06-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 17-01-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SAMEER SHARMA
• Assessee Lawyers: C S AGGARWAL; RAVI PRADEEP MALL
• Keywords: Business income; Depreciation; Principle of natural justice; Bonafide belief; Retrospective amendment; Initiation of penalty proceedings; Wrong claim; Bad and doubtful debts; Assessment record; Revised return; Provision of bad debts; Bonafide mistake
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : H NEW DELHI BEFORE SMT. DIVA SINGH , J.M. AND SHRI J.SUDHAKAR REDDY, A.M. ITA NO. 285 /DEL/20 07 ASSESSMENT YEAR : 200 2 - 03 HYBRID RICE INTERNATIONAL PVT.LTD. VS. DCIT, CIRCLE 12(1) NEW DELHI NEW DELHI ITA NO. 1358 /DEL/20 07 ASSESSMENT YEAR : 200 2 - 03 DCIT, CIRCLE 12(1) VS. HYBRID RICE INTERNATIONAL PVT.LTD. NEW DELHI NEW DELHI C.O.NO. 233/DEL/2007 (IN ITA 1358/DEL/2007) AY: 2002 - 03 HYBRID RICE INTERNATIONAL PVT.LTD. VS. DCIT, CIRCLE 12(1) NEW DELHI NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY: - SHRI C.S.AGGARWAL, SR.ADV. AND SHRI RAVI PRADEEP MALL, ADV. DEPARTMENT BY: - SH.SAMEER SHARMA, , SR.D.R. O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER THESE ARE CROSS APPEALS DIRECTED AGAINST THE ORDER OF LD.CIT(A) - XV DT. 15.12.2006 PERTAINING TO THE AY 2002 - 03 WHEREIN THE LD.CIT(APPEALS) HAS PARTLY CONFIRMED THE PENALTY LEVIED U/S 271(1)(C ) OF THE ACT. 1.1. THE REVENUE FILED APPEAL ON THE ITEMS OF ADDITION ON WHICH THE PENALTY WAS DELETED BY THE LD.CIT(APPEALS) AND THE ASSESSEE HAS COME IN APPEAL ON TH E ITA NO.285/DEL/2007 ITA NO.1358/DEL/2007 C.O.NO.233/DEL/07 (IN ITA 1358/DEL/07) AY: 2002 - 03 M/S HYBRID RICE INTERNATIONAL PVT.LTD. PAGE 2 OF 18 ITEM OF ADDITIONS ON WHICH THE LD.CIT(APPEALS) UPHELD THE PENALTY LEVIED BY THE ASSESSING OFFICER. THE CROSS OBJECTIONS ARE FILED BY THE ASSESSEE. 2. THE GROUNDS OF APPEAL IN THE ASSESSEE S APPEAL IN ITA 285/DEL/2007 ARE AS FOLLOWS. 1. THAT THE LD.C IT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN SUSTAINING LEVY OF PENALTY FOR CONCEALMENT OF INCOME U/S 271(1)(C) OF THE ACT, WITH RESPECT TO DISALLOWANCE ON ACCOUNT OF WRITE BACK OF PROVISION FOR SLOW MOVING INVENTORY AMOUNTING TO RS.5,690,249/ - . 2. THAT THE LD.CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN SUSTAINING LEVY OF PENALTY WITH RESPECT TO DISALLOWANCE ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS WRITTEN OFF AMOUNTING TO RS.1,996,181/ - CLAIMED AS DEDUCTION BY THE APPELLANT IN ITS RETURN OF INCOM E FILED FOR THE SUBJECT YEAR. 3. THAT THE LD.CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN SUSTAINING LEVY OF PENALTY WITH RESPECT TO UNPSENT LIABILITIES WRITTEN BACK AMOUNTING TO RS.668,424 AND IN NOT APPRECIATING THE FACT THAT SUCH DISALLOWANCE WAS SUBSEQ UENTLY DELETED IN THE APPELLATE PROCEEDINGS. 4. THAT THE LD.CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN HOLDING THAT GROUND NO.5 OF MEMORANDUM OF APPEAL IN FORM NO.35, STATING THAT THE APPELLANT FILED A LOSS RETURN WHICH WAS REDUCED ON ASSESSMENT, IS BASELESS AND UNTENABLE. 5. THAT THE LD.CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN NOT APPRECIATING THAT PE NALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT IN RESPECT OF DISALLOWANCES MENTIONED IN GROUND NOS. 1,2 AND 3 WERE INITIATED WITHOUT RECORDING ADEQUATE SATISFACTION WHICH IS A SINE QUA NON FOR INITIATING PENALTY PROCEEDINGS. 2.1. THE GROUNDS OF APPEAL IN THE REVENUE S APPEAL ARE AS FOLLOWS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN CANCELLING THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT, UPON THE ASSESSEE COMPANY IN RESPECT OF DISALLOWANCE OF DEPRECIATION OF RS.1,74 ,02,789/ - OBSERVING THAT THE AO DID NOT RECORD HIS SATISFACTION IN THE ASSESSMENT ORDER DID NOT RECORD HIS SATISFACTION IN THE ASSESSMENT ORDER AS TO THE CONCEALMENT OF INCOME BY THE ASSESSEE COMPANY ON THIS ACCOUNT WHICH MEANS THAT THE CIT(A) IGNORED THE RATIO OF THE DECISION OF THE HON BLE ALLAHABAD HIGH COURT IN 259 ITR 625 WHEREIN IT HAS BEEN HELD AS UNDER: IT MAY BE NOTED THAT WHENEVER THE AO HAS TO RECORD HIS SATISFACTION UNDER THE INCOME TAX ACT, IT IS SPECIFICALLY MENTIONED E.G. IN SECTION 148(2 ) OF THE ITA NO.285/DEL/2007 ITA NO.1358/DEL/2007 C.O.NO.233/DEL/07 (IN ITA 1358/DEL/07) AY: 2002 - 03 M/S HYBRID RICE INTERNATIONAL PVT.LTD. PAGE 3 OF 18 ACT WHICH STATES THAT THE AO BEFORE ISSUING ANY NOTICE UNDER THE SECTION WILL RECORD THE REASON FOR DOING SO. SECTION 273 DOES NOT HAVE A SIMILAR PROVISION REQUIRING RECORDING THE REASON OR SATISFACTION. HENCE, IT HAS TO BE INFERRED THAT PARLIA MENT NEVER INTENDED THAT BEFORE INITIATING PENALTY PROCEEDINGS AND ISSUING NOTICE U/S 273, THE AO MUST RECORD HIS REASONS IN WRITING FOR DOING SO. HAD THAT BEEN SO THERE WOULD HAVE BEEN A SPECIFIC MENTION ABOUT IT IN S.273 OF THE ACT. WE ARE, THEREFORE, OF THE OPINION THAT ALTHOUGH THE AO MUST HAVE SATISFACTION AS REQUIRED U/S 273 OF THE ACT, IT IS NOT NECESSARY FOR HIM TO RECORD THAT SATISFACTION IN WRITING BEFORE INITIATING PENALTY PROCEEDINGS U/S 273 OF THE ACT. 2.2. THE CROSS OBJECTION IS ON THE FOLLOWING GROUNDS. THAT THE LD.CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN NOT DELETING THE PENALTY LEVIED U/S 271(1)(C) ALSO ON THE FOLLOWING GROUNDS: 1.1. THAT EVEN ON MERITS OF THE CASE, NO PENALTY WAS LEVIABLE WITH RESPECT TO DISALLOWANCE OF DEPR ECIATION CLAIMED BY THE APPELLANT ON THE WRITTEN DOWN VALUE OF THE ASSETS AS ON 31 ST MARCH,2001, WHICH WAS ARRIVED AT AFTER CLAIMING DEPRECIATION ON ACTUAL COST OF ASSETS AS ON MARCH 31,2000. 1.2. THAT NO PENALTY IS LEVIABLE AS THE APPELLANT HAS NEITHER CONCEAL ED ITS INCOME NOR FILED INACCURATE PARTICULARS OF THE SAME, 1.3. THAT THERE HAS BEEN NO DELIBERATE CONCEALMENT OF INCOME NOR FURNISHING OF INACCURATE PARTICULARS, AS THE APPELLANT MADE COMPLETE DISCLOSURE IN THE NOTES TO RETURN OF INCOME IN AY 2001 - 02, IN WHIC H YEAR DEPRECIATION ON ACTUAL COST OF ASSETS WAS CLAIMED FOR THE FIRST TIME AND RELIED ON VARIOUS JUDICIAL PRECEDENTS IN SUPPORT OF THE CLAIM OF DEPRECIATION. 1.4. THAT THERE WAS NO FAILURE ON PART OF THE APPELLANT TO OFFER EXPLANATIONS WITH REGARD TO FACTS MAT ERIAL TO THE COMPUTATION OF TOTAL INCOME AND NO EXPLANATIONS OFFERED BY THE APPELLANT WERE CONSIDERED BY THE REVENUE AUTHORITIES TO BE FALSE, AT ANY POINT OF TIME. 1.5. THAT THE APPELLANT WAS UNDER A BONAFIDE BELIEF AND CLAIMED DEPRECIATION ON ACTUAL COST OF AS SETS IN AY 2001 - 02 AND FOLLOWING THE SAME BASIS CLAIMED DEPRECIATION FOR AY 2002 - 03. 1.6. THAT THE APPELLANT RELIED ON VARIOUS JUDICIAL PRECEDENTS IN SUPPORT OF CLAIM OF DEPRECIATION ON ACTUAL COST OF ASSETS AND WHERE TWO OPINIONS ARE POSSIBLE OR THERE ARE DEBATABLE VIEWS THEN THERE CAN BE NO PENALTY FOR CONCEALMENT OF INCOME. 1.7. THAT THE APPELLANT FILED A LOSS RETURN WHICH WAS REDUCED ON ASSESSMENT AND THEREFORE NO PENALTY IS LEVIABLE. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVE S LEAVE TO ADD, AMEND, ALTER OR VARY FROM THE ABOVE GROUNDS AT OR BEFORE THE TIME OF HEARING. ITA NO.285/DEL/2007 ITA NO.1358/DEL/2007 C.O.NO.233/DEL/07 (IN ITA 1358/DEL/07) AY: 2002 - 03 M/S HYBRID RICE INTERNATIONAL PVT.LTD. PAGE 4 OF 18 3. FACTS OF THE CASE : THE ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF PRODUCING AND MANUFACTURING OF HYBRID SEEDS. IT ORIGINALLY FILED ITS RETURN OF INCOME ON 31.10.2002 DECLARING INCOME OF RS 1,33,03,902/ - . THE RETURN WAS PROCESSED U/S 143(1) AND THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE WAS ISSUED U/S 143(2) ON 14.10.2003. THE ASSESSEE FILED A REVISED RETURN OF INCOME ON 14.10.2003 DEC LARING A LOSS OF RS 96,29,070/ - . 3.1 . THE ASSESSEE WAS INITIALLY CLAIMING THE ACTIVITY OF PRODUCTION AND DISTRIBUTION OF HYBRID SEEDS AS AGRICULTURAL ACTIVITY AND INCOME THERE FROM WAS CLAIMED AS EXEMPT. SUBSEQUENT TO THE DECISION OF THE ITAT IN THE CASE OF THE HOLDING COMPANY OF THE ASSESSEE M/S PRO AGRO SEEDS LTD., THE ASSESSEE STARTED TREATING ITS ACTIVITY AS BUSINESS ACTIVITY AND OFFERED THE INCOME IN QUESTION AS BUSINESS INCOME IN THE REVISED RETURN OF INCOME . T HE ASSESSEE CLAIMED DEPREC I ATION AMOU NTING TO RS 2,47,40,539/ - ON THE WRITTEN DOWN VALUE OF ASSETS AS ON 31.3.2001. THE ASSESSEE HAD IN THE REVISED RETURN FOR A.Y. 2001 - 02 AND AY 2003 - 04 OFFERED INCOME UNDER THE HEAD BUSINESS OF WHAT WAS EARLIER CLAIMED AS AGRICULTURAL INCOME . FOR THE A .Y. 2001 - 02 DEPRECIATION WAS CLAIMED ON THE ACTUAL COST OF ASSETS FOR THE FIRST TIME, AS THE ASSESSEE HAD NEITHER CLAIMED DEPREC I ATION IN ANY OF THE EARLIER YEARS NOR WAS IT ALLOWED IN THE EARLIER YEARS. AS STATED , IN THE CURRENT A.Y. THE ASSESSEE CL AIMED DEPREC I ATION ON THE WRITTEN DOWN VALUE OF THE ASSETS AS ON 31.3.2001. THE AO PASSED AN ORDER U/S 143(3) OF THE ACT ON 21.3.2005 ASSESSING THE TOTAL INCOME AT RS.1,61,28,273/ - AS AGAINST THE RETURNED LOSS OF RS. 96,29,370/ - DECLARED BY THE ASSESSEE I N THE REVISED RETURN OF INCOME , INTER ALIA DISALLOWING , DEPREC I ATION TO THE EXTENT OF RS.1,74,02,789/ - , WRITE BACK OF PROVISION FOR SLOW MOVING OF INVENTORY OF RS 56,90,249/ - AND WRITE BACK OF PROVISION FOR DOUBTFUL DEBTS OF RS.6,68,424/ - AND DOUBTFUL DEBTS WRITTEN OFF OF RS.90,96,181/ - . THERE AFTER THE AO PASSED AN ORDER OF PENALTY U/S 271(1)(C ) OF THE ACT ON 20.12.2006 LEVYING PENALTY ON THE FOLLOWING ITEMS: A. DISALLOWANCE OF DEPRECIATION; ITA NO.285/DEL/2007 ITA NO.1358/DEL/2007 C.O.NO.233/DEL/07 (IN ITA 1358/DEL/07) AY: 2002 - 03 M/S HYBRID RICE INTERNATIONAL PVT.LTD. PAGE 5 OF 18 B. ADDITION ON ACCOUNT OF PROVISION FOR SLOW MOVING INVENTORY ; C. DO UBTFUL DEBTS WRITTEN OFF. 4. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE LD.CIT(A) XV, NEW DELHI VIDE ORDER DT 15.12.2006 GRANTED RELIEF ON PENALTY LEVIED RELATING TO DISALLOWANCE OF DEPRECIATION. PENALTY TO THE EXTENT IT RELATES TO THE OTHER ITEMS WERE CONFIRMED. 4.1. AGGRIEVED BOTH THE ASSESEE AND THE REVENUE ARE IN APPEAL. 5. THE DELHI H BENCH OF THE TRIBUNAL VIDE ORDER DT. 20.12.2007 ALLOWED THE APPEAL OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE HON BLE SUPRE ME COURT IN THE CASE OF M/S VIRTUAL SOFT SYSTEMS 289 ITR 83 AND HELD THAT NO PENALTY U/S 271(1)(C) OF THE ACT CAN BE LEVIED IN CASE THERE IS NO POSITIVE INCOME PRIOR TO THE CHANGE MADE BY THE FINANCE ACT 2002 W.E.F. 1.4.2003. IT HELD THAT AS IN THE PRES ENT CASE THE TOTAL INCOME ULTIMATELY ASSESSED IS A LOSS , AFTER GIVING EFFECT TO THE ORDER OF THE TRIBUNAL IN THE QUANTUM PROCEEDINGS , NO PENALTY IS LEVIABLE. FURTHER THE TRIBUNAL HELD THAT THE AO HAS NOT RECORDED HIS SATISFACTION BEFORE INITIATING PROCEED INGS U/S 271(1)(C) AND HENCE THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. JAI BHARATHI, 165 TAXMAN 243 (DELHI) IS APPLICABLE TO THE FACTS OF THE CASE. IT GRANTED RELIEF. THE REVENUE CARRIED THE MATTER IN APPEAL. THE HON BLE HIG H COURT IN ITA NO.1060/2008 VIDE JUDGMENT DT. 17.9.2008 REFERRED TO THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. GOLD COIL HEALTH FOODS PVT.LTD. 304 ITR 308, AS WELL AS THE INTRODUCTION OF SUB - SECTION 1B OF SECTION 271 OF THE ACT B Y THE FINANCE ACT,2008 WITH RETROSPECTIVE EFFECT FROM 1.4.1989 AND SET ASIDE THE MATTER TO THE FILE OF THE TRIBUNAL FOR A DECISION ON MERITS. THUS THE ISSUE IS BEFORE US. 5.1 . WE FIRST TAKE UP THE ASSESSEE S APPEAL. ITA NO.285/DEL/2007 ITA NO.1358/DEL/2007 C.O.NO.233/DEL/07 (IN ITA 1358/DEL/07) AY: 2002 - 03 M/S HYBRID RICE INTERNATIONAL PVT.LTD. PAGE 6 OF 18 5.2 . MR.C.S.AGGARWAL, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT DUE TO AN ERROR IN DESCRIPTION INTERNALLY, A MISTAKE OCCURRED WHILE PREPARATION OF THE RETURN AND A SUM OF RS.56,92,249/ - REPRESENTING PROVISION MADE FOR SLOW MOVING INVENTORY AND RS.19,96,181/ - REPRESENTING PROVI SION FOR DOUBTFUL DEBTS WERE INADVERTENTLY CLAIMED. HE POINTED OUT THAT THE CLAIMS IN QUESTION WERE SUO MOTO WITHDRAWN WHEN THE ASSESSE NOTICED THE ABOVE MISTAKE. HE CONTENDED THAT THE ASSESSEE HAD WRONGLY BELIEVED THAT , THE PROVISION MADE ON ACCOUNT O F SLOW MOVING INVENTORY DURING THE AY 2001 - 02 WAS DISALLOWED IN THAT YEAR AND HENCE HAD CLAIMED A DEDUCTION OF THIS AMOUNT IN THE CURRENT YEAR AS OTHERWISE IT WOULD BE A DOUBLE ADDITION. WHEN THE ASSESSEE NOTICED THAT THE SAID PROVISION CREATED FOR THE AY 2001 - 02 WAS NOT DISALLOWED IN THE EARLIER AY, IT HAD, BEFORE BEING NOTICED BY THE REVENUE AUTHORITIES, VOLUNTARILY OFFERED THE AMOUNT TO TAX. HE CONTENDED THAT THERE WAS NO DETECTION FROM THE DEPARTMENT AND IT WAS A CLERICAL MISTAKE AT THE END OF THE ASSESSEE , WHICH OCCURRED DUE TO A BONAFIDE BELIEF. SIMILARLY REGARDING PROVISION OF BAD DEBTS AMOUNTING TO RS.19,96,181/ - , HE SUBMITTED THAT WHILE COLLATING DETAILS IN RESPONSE TO A QUESTION WITH REGARD TO ALL PROVISIONS DEBITED TO PROFIT AND LOSS ACCO UNT, IT WAS DISCOVERED BY THE ASSESSEE THAT DUE TO AN ERROR IN DESCRIPTION INTERNALLY WHILE PREPARATION OF THE RETURN, A SUM OF RS.17,63,688/ - WAS INADVERTENTLY CLAIMED TWICE BY WAY OF BAD DEBTS WRITTEN OFF AND THEN BY WAY OF BAD DEBTS WRITTEN BACK AMOUNTI NG TO RS.17,63,688/ - . A FURTHER SUM OF RS.2,32,493/ - PERTAINING TO SUNDRY BALANCES WRITTEN OFF THROUGH PROVISION FOR BAD DEBTS ACCOUNT WAS NOT INTENDED TO BE CLAIMED. HERE ALSO THE LD.COUNSEL FOR THE ASSESSEE CLAIMS THAT THE MISTAKE WAS FIRST DISCOVERED BY THE ASSESSEE ITSELF AND BROUGHT TO THE NOTICE OF THE REVENUE AUTHORITIES. HE SPECIFICALLY DREW THE ATTENTION OF THE BENCH TO PAGE 29 OF THE ASSESSEE S PAPER BOOK WHICH IS A COMPUTATION OF TOTAL INCOME FOR THE AY 2002 - 03. THE PROVISION FOR DOUBTFUL DEB TS WRITTEN BACK DURING THE YEAR WAS ADDED. HE FURTHER DREW THE ATTENTION TO PAGE NO.103 OF THE PAPER BOOK WHICH IS A LETTER DT. 04 TH MARCH,2005 WRITTEN BY THE ASSESSEE S COUNSEL M/S S.R.BATLIBOI & CO. TO THE ITA NO.285/DEL/2007 ITA NO.1358/DEL/2007 C.O.NO.233/DEL/07 (IN ITA 1358/DEL/07) AY: 2002 - 03 M/S HYBRID RICE INTERNATIONAL PVT.LTD. PAGE 7 OF 18 AO AND SPECIFICALLY TO PAGES 107 AND 108 AND THE TABLES CONTAINED THEREIN TO DEMONSTRATE THE ERROR THAT HAD CREPT IN. 5.3. HE RELIED ON THE FOLLOWING CASE LAWS. (I) MS.MADHUSHREE GUPTA VS. UOI AND ANOTHER (2009) (DEL) 317 ITR 107 (II) CIT VS. MANJUNAT HA COTTON AND GINNING FACTORY & OTHERS (2013) 359 ITR 565 (KARNATAKA) AND OTHER CASE LAWS WHICH WE WILL BE REFERRING TO IN OUR ORDER. HE CONTENDED THAT THERE IS NO CHARGE OF CONCEALMENT IN THE ASSESSMENT ORDER AN D THAT IT WAS A SILLY MISTAKE DONE BY THE CLERKS AND HENCE PENALTY SHOULD NOT BE LEVIED. 5.4 . MR.SAMEER SHARMA, THE LD.D.R. ON THE OTHER HAND OPPOSED THE CONTENTIONS AND SUBMITTED THAT THE DEDUCTION IN QUESTION WERE DELIBERATELY CLAIMED. HE DISPUTED THE CONTENTIONS OF THE ASSESSEE THAT THE SE ARE SILLY MISTAKES BY POINTING OUT THAT THE ASSESSEE IS WELL ADVISED BY REPUTED C.A. FIRM M/S S.R.BATLIBOI & CO. AND IT DOES NOT APPEAR THAT THE CLAIMS IN QUESTION WERE INADVERTENT MISTAKES. HE WONDERED AS TO HOW THE ASSESSEE COULD IMAGINE THAT THE PR OVISIONS FOR THE EARLIER YEAR WERE ADDED BACK TO THE LAST YEAR S INCOME AND THAT ON THIS BELIEF IT CLAIMED DEDUCTIONS OF WRITE BACK OF PROVISIONS THIS YEAR. HE ARGUED THAT THE EARLIER YEARS COMPUTATION OF INCOME AND ASSESSMENT RECORD WERE BEFORE THE ASS ESSEE AND IT IS CLEAR FROM THOSE DOCUMENTS THAT THE ASSESSEE HAD NOT DISALLOWED IN ITS COMPUTATION THE PROVISIONS CREATED IN THAT YEAR, HENCE ITS CLAIM TO BELIEVE OTHERWISE IS WRONG. HE RELIED ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ZOOM COMMUNICATIONS PVT.LTD. (2010) 327 ITR 510 (DEL) AND SUBMITTED THAT, HAD THE RETURN NOT BEEN TAKE UP FOR SCRUTINY, THE ASSESSEE WOULD HAVE GOT AWAY WITH HIS BLATANTLY WRONG CLAIMS . ON THE CLAIM THAT THE ASSESSEE HAS VOLUNTARILY C ORRECTED THESE MISTAKES, HE SUBMITTED THAT ONLY AFTER THE CASE WAS SELECTED FOR SCRUTINY AND COMMENCEMENT OF THE PROCEEDINGS AND ON BEING ASKED FOR SPECIFIC DETAILS ON VARIOUS OCCASIONS AS IS CLEAR FROM THE ORDER SHEET ITA NO.285/DEL/2007 ITA NO.1358/DEL/2007 C.O.NO.233/DEL/07 (IN ITA 1358/DEL/07) AY: 2002 - 03 M/S HYBRID RICE INTERNATIONAL PVT.LTD. PAGE 8 OF 18 ENTRY THE ASSESSEE WAS AWARE THAT I T WOULD NOT BE ABLE TO GET AWAY WITH THESE WRONG CLAIMS AND HENCE HE CHOSE TO WRITE TO THE AO IN REPLY TO THE QUERIES RAISED IN SUB SEQUENT HEARING OF THE CASE BEFORE THE AO. HE DISTINGUISHED THE JUDGEMENTS RELIED UPON BY THE LD.COUNSEL FOR THE ASSESSEE. 6 . RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, ON PERUSAL OF MATERIAL ON RECORD AND ORDERS OF AUTHORITIES BELOW, AS WELL AS CASE LAWS CITED, WE HOLD AS FOLLOWS. 6.1 . THE ASSESSEE S CASE WAS SELECTED FOR SCRUTINY. NOTICE WAS ISSUED U/S 143(2) OF THE ACT. SUBSEQUENTLY IN REPLY TO VARIOUS QUERIES RAISED BY THE AO, AND THE QUESTIONS AND PROPOSALS FOR ADDITION/DISALLOWANCES MADE BY THE A.O. IN THE ORDER SHEET ENTRY THE ASSESSEE VIDE ITS LETTER DT. 4 TH MARCH,2005 REPLIED ON THE ISSUES IN QUESTION IN THE FOLLOWING WORDS. (PAPER BOOK PAGES 107 AND 108 PARA 11) 11. DETAILS OF PROVISIONS DEBITED TO P&L ACCOUNT: - IN THIS RESPECT IT IS HEREBY SUBMITTED THAT, THE PROVISIONS CR EATED DURING THE YEAR HAVE BEEN ADDED BACK IN COMPUTING THE TAXABLE INCOME OF HRI FOR THE SUBJECT YEAR. FURTHER THE PROVISIONS WHICH HAVE BEEN WRITTEN BACK HAVE BEEN SUBTRACTED IN COMPUTING THE TAXABLE INCOME AS IT REFLECTS PROVISION CREATED IN PRIOR ASSE SSMENT YEAR(S) WHICH WAS ADDED BACK WHILE COMPUTING TAXABLE INCOME FOR THE RELEVANT ASSESSMENT YEAR(S), WHICH ARE NO LONGER REQUIRED AND ACCORDINGLY, WRITTEN BACK. THEREFORE, IN THE EVENT SUCH PROVISION IS WRITTEN BACK IN THE FINANCIAL STATEMENTS, THE SA ME IS REQUIRED TO BE REDUCED FROM THE NET PROFIT AS PER PROFIT AND LOSS ACCOUNT WHILE COMPUTING TAXABLE INCOME OF THE SUBJECT YEAR, OTHERWISE IT WOULD LEAD TO TAXATION OF THE SAID AMOUNT (WHICH HAS ALREADY BEEN OFFERED TO TAX IN THE PRIOR ASSESSMENT YEARS IN WHICH THE PROVISION WAS CREATED) TWICE I.E. ONCE IN THE YEAR IN WHICH THE PROVISION WAS CREATED AND THEN AGAIN THE YEAR IN WHICH THE SAID AMOUNT IS WRITTEN BACK IN THE FINANCIAL STATEMENTS. PROVISION FOR DOUBTFUL DEBTS : - IN RESPECT OF PROVISION FOR DO UBTFUL DEBTS RS.4,795,485/ - WHICH PERTAINS TO PROVISION CREATED DURING THE SUBJECT YEAR, HAS BEEN ADDED BACK IN COMPUTING THE TAXABLE INCOME OF HRI FOR THE SUBJECT YEAR AND RS.1,763,688 BEING PROVISIONS WRITTEN BACK, HAS BEEN SUBTRACTED IN COMPUTING THE TA XABLE INCOME OF HRI FOR THE SUBJECT YEAR. THE SUM OF RS.1,763,688 AS REGARDS PROVISION WRITTEN BACK AS PER FINANCIALS AND RETURN OF INCOME, PERTAINS TO EXCESS PROVISIONS WRITTEN BACK AND IS INCLUDED IN THE FIGURE OF PROVISION NO L ONGER ITA NO.285/DEL/2007 ITA NO.1358/DEL/2007 C.O.NO.233/DEL/07 (IN ITA 1358/DEL/07) AY: 2002 - 03 M/S HYBRID RICE INTERNATIONAL PVT.LTD. PAGE 9 OF 18 REQUIRED AND WRITT EN BACK REFLECTED IN SCHEDULE 11 OF THE BALANCE SHEET - OTHER INCOME. PROVISION FOR DOUBTFUL ADVANCES IN RESPECT OF PROVISION FOR DOUBTFUL ADVANCES NO PROVISION HAS BEEN CREATED DURING THE YEAR AND ACCORDINGLY NOTHING HAS BEEN ADDED BACK IN THIS REGARD IN COMPUTING THE TAXABLE INCOME OF THE SUBJECT YEAR. THE PROVISION WHICH IS OUTSTANDING ON MARCH 31,2002 I.E. THE CLOSING BALANCE IS THE SAME AS THE OPENING BALANCE AND NO ADJUSTMENTS HAVE BEEN MADE IN THIS REGARD. ACCORDINGLY, THERE IS NO CORRESPONDING ADJ USTMENT IN THE RETURN OF THE SUBJECT YEAR. PROVISION FOR SLOW MOVING INVENTORY THE PROVISION IN RESPECT OF SLOW MOVING INVENTORY CREATED DURING THE YEAR OF RS.8,486,580 HAS BEEN DISALLOWED IN COMPUTING THE TAXABLE INCOME DURING THE SUBJECT YEAR. THE OPENI NG BALANCE OF THE PROVISION OF RS.5,690,249 PERTAINS TO PROVISION CREATED IN AY 2001 - 02 AND WRITTEN BACK DURING THE SUBJECT YEAR AND HENCE DEDUCTED IN COMPUTING THE TAXABLE INCOME OF THE SUBJECT YEAR. IN THIS REGARD, IT IS HEREBY SUBMITTED THAT THE SUM OF RS.5,690,249 WHICH HAS BEEN CLAIMED AS A DEDUCTION IN THE SUBJECT ASSESSMENT WAS CLAIMED AS A DEDUCTION ON THE BELIEF THAT THE SAME HAS BEEN DISALLOWED IN THE RETURN FOR AY 2001 - 02. HOWEVER, THE ASSESSEE HAS JUST DISCOVERED THAT THE AMOUNT HAS INADVERTENT LY NOT BEEN DISALLOWED IN THE RETURN FOR AY 2001 - 02. THE ASSESSEE THROUGH THIS LETTER ALSO REQUESTS THAT THE ASSESSMENT FOR AY 2001 - 02 BE RECTIFIED BY MAKING THE ADDITION OF RS.5,690,249 IN AY 2001 - 02. DETAILS OF INVENTORY WRITTEN OFF OF RS.5,690,249 AND NOT OFFERED TO TAX IN THE RETURN OF INCOME OF THE SUBJECT YEAR SAME AS REPLY TO QUESTION 11 ABOVE. 6.2 . FURTHER ON 21 ST MARCH,2005 THE ASSESSEE IN REPLY TO FURTHER QUERIES OF THE AO SUBMITTED ANOTHER LETTER TO THE AO AND AT PARA 2 STATED AS FOLLOWS. (PAP ER BOOK PAGE 113) 2. DOUBTFUL DEBTS WRITTEN OFF RS.1,996,181: - IT IS HEREBY SUBMITTED THAT THE AMOUNT PERTAINING TO DOUBTFUL DEBTS WRITTEN OFF WHICH HAS BEEN CLAIMED AS DEDUCTION IN THE SUBJECT YEAR WAS INADVERTENTLY CLAIMED DUE TO ERROR IN DESCRIPTION INTERNALLY WHILE P REPARATION OF RETURN AND THE SAME INCLUDES THE WRITE BACK OF RS.1,763,688 ALREADY CLAIMED. THIS HAS RESULTED IN THE DEDUCTION BEING CLAIMED TWICE. FURTHER, THE BALANCE ITA NO.285/DEL/2007 ITA NO.1358/DEL/2007 C.O.NO.233/DEL/07 (IN ITA 1358/DEL/07) AY: 2002 - 03 M/S HYBRID RICE INTERNATIONAL PVT.LTD. PAGE 10 OF 18 AMOUNT OF RS.232,493 PERTAINS TO SUNDRY BALANCES WRITTEN OFF AGAINST PROVISIONS, WHICH IS NOT INTENDED TO BE CLAIMED. ACCORDINGLY, IT IS HEREBY SUBMITTED THAT THE SUM OF RS.1,996,181 BE ADDED BACK TO THE INCOME OF THE SUBJECT YEAR. 6.3 . A PERUSAL OF THE ABOVE FACTS DEMONSTRATE THAT THIS IS NOT A CASE OF THE ASSESSEE SUO MOTO AND VOLUNTA RILY OFFERING TO TAX AN AMOUNT OF RS.19,96,181/ - BEING DOUBTFUL DEBTS WRITTEN OFF AND AN AMOUNT OF RS.56,90,279/ - BEING PROVISION FOR SLOW MOVING INVENTORY WRITTEN BACK. IT WAS ONLY ON THE CASE BEING SELECTED FOR SCRUTINY AND ON THE SPECIFIC QUERIES RAISE D BY THE AO DURING THE PROCEEDINGS ON 25.02.2005 AND SUBSEQUENT HEARINGS THAT THE ASSSESEE HAS ADMITTED THAT IT HAD WRONGLY CLAIMED DEDUCTIONS ON ACCOUNT OF PROVISION FOR SLOW MOVING INVENTORY AND ON ACCOUNT OF DOUBTFUL DEBTS WRITTEN OFF. IN FACT IN THIS ASSESSEMENT ORDER THE AO HAS RECORDED THAT VIDE ORDER SHEET ENTRY DATED 25.02.2005 THE AUTHORIZED REPRESENTATIVE WAS ASKED TO EXPLAIN AS TO WHY PROVISION FOR INVENTORY WRITTEN OFF SHOULD BE ALLOWED AND ALSO THAT VIDE ORDER SHEET ENTRY DATED 14.03.2005 THE AUTHORIZED REPRESENTATIVE WAS ASKED TO FURNISH DETAILS OF DOUBT FULL DEBTS WRITTEN - OFF, WHICH DEMONSTRATES THAT IT IS ONLY AFTER ENQUIRY AND ISSUE OF A SHOW CAUSE NOTICE BY WAY OF ORDER SHEET ENTRY, THE ASSESSEE ADMITTED TO ITS MAKING DOUBLE CLAIMS. THE C ONTENTION OF THE ASSESEE THAT IT WAS UNDER A BELIEF THAT THESE PROVISIONS IN QUESTION WERE DISALLOWED IN THE EARLIER AY IS NOT BELIEVABLE FOR THE REASON THAT, IT IS A MATTER OF RECORD THAT THAT ASSESEE HAS NOT SUO MOTO DISALLOWED THESE PROVISIONS IN THE COMPUTATION OF INCOME FILED BY IT FOR THE EARLIER ASSESSMENT YEAR. ON T HE ONE HAND WRONG COMPUTATIONS OF INCOME WERE FILED FOR THE EARLIER A.Y. THE CLAIM THAT ON A BELIEF THAT THE ASSESSEE HAD SUO MOTO DISALLOWED PROVISIONS FOR THE EARLIER YEAR, DEDUCTION S OF THE WRITE - BACKS WERE CLAIMED AS NOT TAXABLE IN THIS YEAR IS NOT BELIEVABLE ON THE FACTS OF THIS CASE. ITA NO.285/DEL/2007 ITA NO.1358/DEL/2007 C.O.NO.233/DEL/07 (IN ITA 1358/DEL/07) AY: 2002 - 03 M/S HYBRID RICE INTERNATIONAL PVT.LTD. PAGE 11 OF 18 6.4 . THE ORDER OF ASSES SMENT IN THIS CASE HAS BEEN FRAMED WITH REFERENCE TO REVISED RETURN FILED BY THE ASSESEE AND HENCE, IN OUR VIEW, THE CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME HAVE TO BE VIEWED WITH REFERENCE TO THIS REVISED RETURN OF INCOME AND NOT TO THE ORIGINAL RETURN OF INCOME AS THE REVISED RETURN OF INCOME IS A VALID RETURN OF INCOME. 6.5. WE ARE OF THE CONSIDERED VIEW THAT ON THE FACTS OF THIS CASE THE EXPLANATION GIVEN BY THE ASSESSEE IS NOT BONAFIDE AND THE CLAIMS MADE ARE NOT INADVERTENT MISTAKES. THE ASSESSEE IN O UR VIEW HAS FURNISHED INACCURATE PARTICULARS OF INCOME AND HENCE PENALTY U/S 271(1)(C ) HAS BEEN RIGHTLY LEVIED BY THE LD.AO AND IT HAS RIGHTLY BEEN CONFIRMED BY THE LD.CIT(A). 6. 6 . COMING TO THE INITIATION OF PENALTY PROCEEDINGS, THE AO HAD INITIATED PENA LTY PR OC EEDING AT PAGE 6 OF HIS ORDER WHICH , IN OUR VIEW IS VALID INITIATION OF PROCEEDINGS. THE HON BLE HIGH COURT HAS ALREADY UPHELD THE INITIATION OF THE PROCEEDINGS IN THIS CASE AND HAS DIRECTED THE ITAT TO DISPOSE THIS ISSUE ON MERITS. HENCE THESE ARGUMENTS OF THE LD.COUNSEL FOR THE ASSESSEE ARE DISMISSED. 6. 7 . WE NOW DEAL WITH THE CASE LAWS CITED BY THE LD. COUNSEL FOR THE ASSESSEE . (I) CIT VS. MANJUNATHA COTTON AND GINNING FACTORY AND OTHERS (2013) 359 ITR 565 (KAR.): THE HON BLE KARNATAKA HIGH COURT WAS CONSIDERING THE CASE WHERE THERE WAS NO PROOF OF CONCEALMENT OF INCOME. IT WAS A CASE WHERE THE HON BLE HIGH COURT HELD THAT THE EXPLANATION GIVEN BY THE ASSESSEE WAS BONAFIDE AND MERELY BECAUSE THE ASSESSEE AGREED TO THE ADDITION AND THE ASSESSMENT ORDER WAS PASSED ON THE BASIS OF THIS AD MISSION , IN THE ABSENCE OF ANY MATERIAL ON RECORD TO SHOW CONCEALMENT OF INCOME, NO PENALTY CAN BE LEVIED. THE FACTS OF THE CASE ON HAND ARE ENTIRELY DIFFERENT. OUR FINDING OF FACT IS THAT THE ASSESSEE HAS NOT VOLUNTARILY OFFERED THE INCOME TO TAX. IN FACT THE EXPLANATION GIVEN IS IN OUR OPINION NOT BONAFIDE. THE FACT , IN THIS DECISION THAT THE HON BLE KARNATAKA HIGH COURT AT PAGE 6 0 2 PARA GRAPH 63, AFTER ITA NO.285/DEL/2007 ITA NO.1358/DEL/2007 C.O.NO.233/DEL/07 (IN ITA 1358/DEL/07) AY: 2002 - 03 M/S HYBRID RICE INTERNATIONAL PVT.LTD. PAGE 12 OF 18 CONSIDERING NUMEROUS DECISIONS, HAS CULLED OUT THE PRINCIPLES THAT GOVERN LEVY OF PENALTY U/S 271(1) (C ). THESE ARE EXTRACTED FOR READY REFERENCE. 63 . IN THE LIGHT OF WHAT IS STATED ABOVE, WHAT EMERGES IS AS UNDER : (A) PENALTY UNDER SECTION 271 (1) (C) IS A CIVIL LIABILITY. (B) MENS REA IS NOT AN ESSENTIAL ELEMENT FOR IMPOSING PENALTY FOR BREACH OF CIVIL OBLIGATIONS OR LIABILITIES. (C) WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING CIVIL LIABILI TY. (D) EXISTENCE OF CONDITIONS STIPULATED IN SECTION 271 (1) (C) IS A SINE QUA NON FOR INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271. (E) THE EXISTENCE OF SUCH CONDITIONS SHOULD BE DISCERNIBLE FROM THE ASSESSMENT ORDER OR THE ORDER OF THE APPELLATE AUTHORITY OR THE REVISIONAL AUTHORITY. (F) EVEN IF THERE IS NO SPECIFIC FINDING REGARDING THE EXISTENCE OF THE CONDITIONS MENTIONED IN SECTION 271(1) (C), AT LEAST THE FACTS SET OUT IN EXPLANATION 1(A) AND 1(B) IT SHOULD BE DISCERNIBLE FROM THE SAID ORDER WHICH WOULD BY A LEGAL FICTION CONSTITUTE CONCEALMENT BECAUSE OF DEEMING PROVISION. (G) EVEN IF THESE CONDITIONS DO NOT EXIST IN THE ASSESSMENT ORDER PASSED, AT LEAST, A DIRECTION TO INITIATE PROCEEDINGS UNDER SECTION 271(1)(C) IS A SINE QUA NON FOR THE ASSESSING OFFICER TO' INITIATE THE PROCEEDINGS BECAUSE OF THE DEEMING PROVISION CONTAINED IN SUB - SECTION (LB). (H) THE SAID DEEMING PROVISIONS ARE NOT APPLICABLE TO THE ORDERS PASSED BY THE COMMISSIONER OF INCOME - TAX (APPEALS) AND THE COMMISSIONER. (I) THE IMPOSITION OF PENALTY IS NOT AUTOMATIC. (J) THE IMPOSITION OF PENALTY EVEN IF THE TAX LIABILITY IS ADMITTED IS NOT AUTOMATIC. (K) EVEN IF THE ASSESSEE HAS NOT CHALLENGED THE ORDER OF ASSESSMENT LEV YING TAX AND INTEREST AND HAS PAID TAX AND INTEREST THAT BY ITSELF WOULD NOT BE SUFFICIENT FOR THE AUTHORITIES EITHER TO INITIATE PENALTY PROCEEDINGS OR IMPOSE PENALTY, UNLESS IT IS DISCERNIBLE FROM THE ASSESSMENT ORDER THAT, IT IS ON ACCOUNT OF SUCH UNEAR THING OR ENQUIRY CONCLUDED BY THE AUTHORITIES IT HAS RESULTED IN PAYMENT OF SUCH TAX OR SUCH TAX LIABILITY CAME TO BE ADMITTED AND IF NOT IT WOULD HAVE ESCAPED FROM TAX NET AND AS OPINED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. (L) ONLY WHEN NO E XPLANATION IS OFFERED OR THE EXPLANATION OFFERED IS FOUND TO BE FALSE OR WHEN THE ASSESSEE FAILS TO PROVE THAT THE EXPLANATION OFFERED IS NOT BONA FIDE, AN ORDER IMPOSING PENALTY COULD BE PASSED. (M) IF THE EXPLANATION OFFERED, EVEN THOUGH NOT SUBSTANTIAT ED BY THE ASSESSEE, BUT IS FOUND TO BE BONA FIDE AND ALL FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, NO PENALTY COULD BE IMPOSED. ITA NO.285/DEL/2007 ITA NO.1358/DEL/2007 C.O.NO.233/DEL/07 (IN ITA 1358/DEL/07) AY: 2002 - 03 M/S HYBRID RICE INTERNATIONAL PVT.LTD. PAGE 13 OF 18 (N) THE DIRECTION REFERRED TO IN EXPLANATION L(B) TO SECTION 2 71 OF THE ACT SHOULD BE CLEAR AND WITHOUT ANY AMBIGUITY. ( O ) IF THE ASSESSING OFFICER HAS NOT RECORDED ANY SATISFACTION OR HAS NOT ISSUED ANY DIRECTION TO INITIATE PENALTY PROCEEDINGS, IN APPEAL, IF THE APPELLATE AUTHORITY RECORDS SATISFACTION, THEN THE PENALTY PROCEEDINGS HAVE TO BE INITIATED BY THE APPELLATE AUTHORITY AND NOT THE ASSESSING AUTHORITY. (P) NOTICE UNDER SECTION 274 OF THE ACT SHOULD SPECIFICALLY STATE THE GROUNDS MENTIONED IN SECTION 271(1)(C), I.E., WHETHER IT IS FOR CONCEALMENT OF INCOM E OR FOR FURNISHING OF INCORRECT PARTICULARS OF INCOME (Q) SENDING PRINTED FORM WHERE ALL THE GROUNDS MENTIONED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY THE REQUIREMENT OF LAW. (R) THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE HAS TO MEET SPECIFICA LLY. OTHERWISE, THE PRINCIPLES OF NATURAL JUSTICE IS OFFENDED. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED TO THE ASSESSEE. (S) TAKING UP OF PENALTY, PROCEEDINGS ON ONE LIMB AND FINDING THE ASSESSEE GUILTY OF ANOTHER LIMB BAD IS BAD IN L AW. . (T) THE PENALTY PROCEEDINGS ARE DISTINCT FROM THE ASSESSMENT PROCEEDINGS. THE PROCEEDINGS FOR IMPOSITION OF PENALTY THOUGH EMANATE FROM PROCEEDINGS OF ASSESSMENT, IT IS INDEPENDENT AND SEPARATE ASPECT OF THE PROCEEDINGS. (U) THE FINDINGS RECORDED IN THE ASSESSMENT PROCEEDINGS IN SO FAR AS 'CONCEALMENT OF INCOME' AND 'FURNISHING OF INCORRECT PARTICULARS' WOULD NOT OPERATE AS RES JUDICATA IN THE PENALTY PROCEEDINGS. IT IS OPEN TO THE ASSESSEE TO CONTEST THE SAID PROCEEDINGS ON THE MERITS. HOWEVER, TH E VALIDITY OF THE ASSESSMENT OR REASSESSMENT IN PURSUANCE OF WHICH PENALTY IS LEVIED, CANNOT BE THE SUBJECT MATTER OF PENALTY PROCEEDINGS. THE ASSESSMENT OR REASSESSMENT CANNOT BE DECLARED AS INVALID IN THE PENALTY PROCEEDINGS. IN OUR VIEW, ON APPLICATI ON OF ALL THESE PROPOSITIONS TO THE FACTS OF THIS CASE, WE HAVE TO UPHOLD THE LEVY OF PENALTY. (II) THE HON BLE DELHI HIGH COURT IN THE CASE OF MS.MADHUSHREE GUPTA VS. UOI AND ANOTHER (2009) REPORTED IN 317 ITR 107 HAS LAID DOWN THAT PRIMA FACIE SATISFACTION OF THE AO THAT THE CASE MAY BE SERVED IMPOSITION OF PENALTY SHOULD BE DISCERNIBLE FROM THE ORDER PASSED DURING THE COURSE OF THE PROCEEDINGS. IN THE CASE ON HAND THE PRIMA FACIE SATISFACTION OF THE AO IS DISCERNIBLE FROM THE ASSESSMENT ORDER. AT PARA 36, PAGE 128 OF THIS ORDER THE HON BLE COURT HAS OBSERVED AS FOLLOWS. ITA NO.285/DEL/2007 ITA NO.1358/DEL/2007 C.O.NO.233/DEL/07 (IN ITA 1358/DEL/07) AY: 2002 - 03 M/S HYBRID RICE INTERNATIONAL PVT.LTD. PAGE 14 OF 18 A BARE READING OF SECTION 271(1)(C) WOULD SHOW THAT TO INITIATE PENALTY PROCEEDINGS FOLLOWING PRE - REQUISITES SHOULD OBTAIN. (I) THE ASSESSIN G OFFICER SHOULD BE SATISFIED THAT: - A) THE ASSESSEE HAS EITHER CONCEALED PARTICULARS OF HIS INCOME; OR B) FURNISH ED INACCURATE PARTICULARS OF HIS INCOME; OR C) INFRACTED BOTH (A) AND (B) ABOVE (II) THIS SATISFAC TION SHOULD BE ARRIVED AT DURING THE COURSE OF ANY PROCEEDINGS. THESE COULD BE ASSESSMENT, REASSESSMENT OR RECTIFICATION PROCEEDINGS, BUT NOT PENALTY PROCEE DINGS. (III) IF INGREDIENTS CONTAINED IN (I) AND (II) ARE PRESENT A NOTICE TO SHOW CAUSE UNDER SECTION 274 OF THE ACT SHALL ISSUE SETTING OUT THEREIN THE INFRACTION THE ASSESSEE IS SAID TO HAVE COMMITTED. THE NOTICE UNDER SECTION 274 OF THE ACT CAN BE ISS UED BOTH DURING OR AFTER THE COMPLETION OF ASSESSMENT PROCEEDINGS, HOWEVER, THE SATISFACTION OF THE ASSESSING OFFICER THAT THERE HAS BEEN AN INFRACTION OF CLAUSE (C) OF SUB - SECTION (1) OF SECTION 271 SHOULD PRECEDE CONCLUSION OF THE PROCEEDINGS PENDING BEF ORE THE ASSESSING OFFICER. (IV) THE ORDER IMPOSING PENALTY CAN BE PASSED ONLY AFTER ASSESSMENT PROCEEDINGS ARE COMPLETED. THE TIME FRAME FOR PASSING THE ORDER IS CONTAINED IN SECTION 275 OF THE ACT. TO SUMMARIZE: THE SUPREME COURT HELD THAT THE SATISFACT ION WHICH THE ASSESSING OFFICER WAS REQUIRED TO ARRIVE AT DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR INITIATION OF PENALTY PROCEEDINGS WAS PRIMA FACIE IN NATURE AS AGAINST A FINAL CONCLUSION THAT THE ASSESSEE HAD COMMITTED AN ACT OF OMISSION OR COMM ISSION WHICH WOULD BRING HIM WITHIN THE AMBIT OF THE PROVISIONS OF CLAUSE (C) OF SUB - SECTION (1) OF SECTION 271. THE NOTICE UNDER SECTION 274 WAS TO FOLLOW. WHAT WAS IMPORTANT WAS THAT SATISFACTION HAD TO BE ARRIVED AT DURING THE COURSE OF ASSESSMENT PROCE EDINGS AND NOT ISSUANCE OF NOTICE UNDER SECTION 274 OF THE ACT. (SEE D.M. MANASVI (1972) 86 ITR 557 AND AND S.V. ANGIDI CHETTIAR (1962) 44 ITR 739. A BARE READING OF THE AFORESAID EXTRACT FROM RAMPUR ENGINEERING (SUPRA) WOULD SHOW THAT THE FULL BENCH: (I) APPLIED THE LAW, AS IT OUGHT TO, AS DECLARED IN D.M. MANASVI (SUPRA) AND S.V. ANGIDI CHETTIAR (SUPRA)WP(C) NO. 5059 - 2008 PAGE 49 OF 64 (II) A FORTIORI THE PRINCIPLE FOR INITIATI ON OF PENALTY PROCEEDINGS BEING THE PRIMA FACIE SATISFACTION OF THE ASSESSI NG OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS BEING DISCERNIBLE FROM THE RECORD, WAS REITERATED. ITA NO.285/DEL/2007 ITA NO.1358/DEL/2007 C.O.NO.233/DEL/07 (IN ITA 1358/DEL/07) AY: 2002 - 03 M/S HYBRID RICE INTERNATIONAL PVT.LTD. PAGE 15 OF 18 (III) THE IRRELEVANCE OF - THE ASSESSING OFFICER HAVING TO SAY SO IN SO MANY WORDS THA T I AM SATISFIED WAS HIGHLIGHTED. (IV) THE JUDGMENT OF THE DIV ISION BENCH IN RAM COMMERCIAL WAS AFFIRMED WHICH ENUNCIATED THAT: FIRSTLY SATISFACTION SHOULD BE THAT OF ASSESSING OFFICER. SECONDLY, THE ASSESSMENT ORDER SHOULD REFLECT SUCH SATISFACTION. IN OUR OPINION THE IMPUGNED PROVISION ONLY PROVIDES THAT AN ORDER INITIATING PENALTY CANNOT BE DECLARED BAD IN LAW ONLY BECAUSE IT STATES THAT PENALTY PROCEEDINGS ARE INITIATED, IF OTHERWISE IT IS DISCERNIBLE FROM THE RECORD, THAT THE ASSESSING OFFICER HAS ARRIVED AT PRIMA FACIE SATISFACTION FOR INITIATION PENALTY PROCEE DINGS. THE ISSUE IS OF DISCERNIBILITY OF THE SATISFACTION ARRIVED AT BY THE ASSESSING OFFICER DURING THE COURSE OF PROCEEDING BEFORE HIM. IN THE RESULT, OUR CONCLUSION ARE AS FOLLOWS: (I) SECTION 271(1B) OF THE ACT IS NOT VIOLATIVE OF ARTICLE 14 OF THE CO NSTITUTION. (II) THE POSITION OF LAW BOTH PRE AND POST AMENDMENT IS SIMILAR, IN AS MUCH, THE ASSESSING OFFICER WILL HAVE TO ARRIVE AT A PRIMA FACIE SATISFACTION DURING THE COURSE OF PROCEEDINGS WITH REGARD TO THE ASSESSEE HAVING CONCEALED PA RTICULARS OF IN COME OR FURNISHED INACCURATE PARTICULARS, BEFORE HE INITIATES PENALTY PROCEEDINGS. (III)PRIMA FACIE SATISFACTION OF THE ASSESSING OFFICER THAT THE CASE MAY DESERVE THE IMPOSITION OF PENALTY SHOULD BE DISCERNIBLE FROM THE ORDER PASSED DURING THE COURSE OF THE PROCEEDINGS. OBVIOUSLY, THE ASSESSING OFFICER WOULD ARRIVE AT A DECISION, I.E., A FINAL CONCLUSION ONLY AFTER HEARING THE ASSESSEE. (IV) AT THE STAGE OF INITIATION OF PENALTY PROCEEDING THE ORDER PASSED BY THE ASSESSING OFFICER NEED NOT REFLECT SATISFA CTION VIS - A - VIS EACH AND EVERY ITEM OF ADDITION OR DISALLOWANCE IF OVERALL SENSE GATHERED FROM THE ORDER IS THAT A FURTHER PROGNOSIS IS CALLED FOR. (V) HOWEVER, THIS WOULD NOT DEBAR AN ASSESSEE FROM FURNISHING EVIDENCE TO REBUT THE PRIMA FACIE SATISFACTION OF THE ASSESSING OFFICER; SINCE PENALTY PROCEEDING ARE NOT A CONTINUATION OF ASSESSMENT PROCEEDINGS. [SEE JAIN BROTHERS V. UNION OF INDIA (1970) 77 ITR 107(SC)] (VI) DUE COMPLIANCE WOULD BE REQUIRED TO BE MADE IN RESPECT OF THE PROVISIONS OF SECTION 274 A ND 275 OF THE ACT. (VII) THE PROCEEDINGS FOR INITIATION OF PENALTY PROCEEDING CANNOT BE SET ASIDE ONLY ON THE GROUND THAT THE ASSESSMENT ORDER STATES PENALTY PROCEEDINGS ARE INITIATED SEPARATELY IF OTHERWISE, IT CONFORMS TO THE PARAMETERS SET OUT HEREINAB OVE ARE MET. ITA NO.285/DEL/2007 ITA NO.1358/DEL/2007 C.O.NO.233/DEL/07 (IN ITA 1358/DEL/07) AY: 2002 - 03 M/S HYBRID RICE INTERNATIONAL PVT.LTD. PAGE 16 OF 18 6. 8 . APPLYING THE PROPOSITIONS LAID DOWN TO THE FACTS OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT THE PENALTY PROCEEDINGS WERE RIGHTLY INITIATED IN THIS CASE AND THAT THE PENALTY WAS RIGHTLY CONFIRMED BY THE LD.CIT(A). 6. 9 . (I) CIT VS. SOMAN Y EVERGREE KNITS LTD. (2013) 35 TAXMANN.COM 529 (BOM) IS A CASE WHERE THE CLAIM OF THE ASSESSEE THAT THE MISTAKE IS BONAFIDE WAS NOT DISPUTED BY THE REVENUE. THE HON BLE COURT CAME TO A CONCLUSION ON THE FACTS OF THAT CASE THAT THE MISTA KE WAS BONAFIDE AND THE TIME TO FILE THE REVISED RETURN HAS EXPIRED. THE REVENUE HAD NOT DISPUTED THE CLAIM OF THE ASSESSEE THAT THIS IS A BONAFIDE MISTAKE. IN THE CASE ON HAND THE LD.D.R. DISPUTED THE CLAIM OF THE ASSESSEE THAT THIS IS A BONAFIDE MISTAK E . (II) CIT VS. OSCAR UDYOG LTD. (2014) 42 TAXMANN.COM 258 (KARNATAKA) THE HON BLE HIGH COURT WAS CONSIDERING A CASE WHERE THE ASSESSEE WAS ELIGIBLE TO MAKE A PARTICULAR CLAIM FOR DEDUCTION AND IT WAS ONLY ON A DEMAND BY THE DEPARTMENT THAT IT WITHDREW T HE ELIGIBLE DEDUCTION AND IN THOSE CIRCUMSTANCES IT WAS HELD THAT THE ASSESSEE HAD NO MALAFIDE INTENTION. HENCE THE FACTS ARE ENTIRELY DIFFERENT FROM THE CASE ON HAND. (III) PRICE WATERHOUSE COOPERS P.LTD. VS. CIT AND ANOTHER (2012) 348 ITR 306 (S.C.), T HE CONCLUSION DRAWN WAS THAT THE MISTAKE WAS BONAFIDE AND IT WAS AN INADVERTENT ERROR. THIS IS NOT A CONCLUSION DRAWN BY US ON THE FACTS OF THIS CASE. WE ARE OF THE OPINION THAT THE MISTAKE CANNOT BE CALLED AS A BONAFIDE MISTAKE OR INADVERTENT ERROR ON T HE FACTS OF THIS CASE. HENCE THE PROPOSITIONS LAID DOWN IN THIS CASE LAW IS NOT APPLICABLE. (III) WE HAVE CONSIDERED ALL THE OTHER DECISIONS CITED BY THE LD.COUNSEL FOR THE ASSESSEE AND ARE OF THE OPINION THAT THEY ARE NOT APPLICABLE TO THE FACTS OF THIS CASE. WE ARE OF THE OPINION THAT THE PROPOSITIONS LAID DOWN IN THE CASE OF CIT VS. ZOOM COMMUNICATIONS P.LTD. (2010) 327 ITR 510 (DEL.) RELIED UPON BY THE LD.D.R. APPLY TO THE FACTS OF THE CASE ON HAND. ITA NO.285/DEL/2007 ITA NO.1358/DEL/2007 C.O.NO.233/DEL/07 (IN ITA 1358/DEL/07) AY: 2002 - 03 M/S HYBRID RICE INTERNATIONAL PVT.LTD. PAGE 17 OF 18 6. 10 . IN VIEW OF THE ABOVE DISCUSSIONS, WE ARE OF THE CONSIDERED OPINION THAT THE AO WAS RIGHT IN LEVYING PENALTY U/S 271(1)(C ) OF THE ACT ON THE GROUND THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME AND THE FIRST APPELLATE AUTHORITY HAS RIGHTLY UPHELD THIS ORDER. 7. ON GROUND NO.3, AS THERE IS NO LEVY OF ANY PENALTY ON THE AMOUNT OF RS.6,68,424/ - THE QUESTION OF THE LD.CIT(A) UPHOLDING THE SAME DOES NOT ARISE. HENCE THIS GROUND IN OUR VIEW IS INFRUCTUOUS. 8. OTHER GROUNDS ARE GENERAL IN NATURE. 9 . IN THE RESULT THE APPEAL OF THE ASSES SEE IS DISMISSED. 10 . COMING TO THE REVENUE S APPEAL, THE CONTENTIONS OF THE LD.COUNSEL FOR THE ASSESSEE ARE THAT THE PROVISION FOR DOUBTFUL DEBTS WRITTEN BACK OF RS.6,68,424/ - AND THE PARTIAL DISALLOWANCE OF DEPRECIATION OF RS.1,74,02,789/ - HAS NOT BEEN ADDED FINALLY OR HAVE BEEN DELETED BY THE TRIBUNAL VIDE ITS ORDER DT. 15.6.2007 WHICH WAS UPHELD BY THE HON BLE DELHI HIGH COURT IN ITA 333/2008 AND 338/2008 VIDE JUDGEMENT DT. 9 TH OCTOBER,2009 . IN VIEW OF THE ABOVE, THE REVENUE S APPEAL HAS TO BE DISMISSED. 11 . IN THE RESULT, WE DISMISS THE APPEAL OF THE REVENUE. 1 2 . COMING TO THE CROSS OBJECTION OF THE ASSESSEE, IN VIEW OF OUR DECISION BOTH IN THE CASE OF ASSESSEE AS WELL AS REVENUE, THE CROSS OBJECTION ALSO STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 4 T H SEPTEMBER, 2014. S D / - S D / - ( DIVA SINGH ) ( J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 2 4 T H SEPTEMBER, 2014 *MANGA ITA NO.285/DEL/2007 ITA NO.1358/DEL/2007 C.O.NO.233/DEL/07 (IN ITA 1358/DEL/07) AY: 2002 - 03 M/S HYBRID RICE INTERNATIONAL PVT.LTD. PAGE 18 OF 18 COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR