Usha Audiotel Limited (Since Struck off), By Basant Kumar Jhawar, Kolkata V. ITO, Ward - 11(1), Kolkata , Kolkata

ITA 696/KOL/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6696 (ITAT-KOLKATA)
• Duration Of Justice: 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 1997-1998
• Appeal Filed On: 13-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Retrospective amendment; Question of law; Initiation of penalty proceedings; Revenue expenditure
• Section: 271(1)(c); 271(1)(b); 143(3); 27; 154

Judgement Text

1 ITA NO.696/KOL/2018 USHA AUDIOTEL L IMITED , AY- 1997-98 , D , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: KOL KATA ( ) . . , . . ! , ' #$ ) [BEFORE SHRI P.M. JAGTAP, VICE PRESIDENT & SHRI A. T. VARKEY, JM] I.T.A. NO. 696/KOL/2018 ASSESSMENT YEAR: 1997-98 USHA AUDIOTEL LIMITED (SINCE STRUCK OFF) BY BASANT KUMAR JHAWAR (PAN: ACUPJ2827L) VS. INCOME-TAX OFFICER, WARD-11(1), KOLKATA APPLICANT RESPONDENT DATE OF HEARING 08.01.2019 DATE OF PRONOUNCEMENT 23.01.2019 FOR THE APPLICANT SHRI A. K. TIBREWALA, FCA & SHRI AMIT AGARWAL, ADVOCATE FOR THE RESPONDENT SHRI SANKAR HALDER, JCIT, SR. DR ORDER PER SHRI A.T.VARKEY, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-11, KOLKATA DATED 25.01.2018 FOR AY 1997-98. 2. GROUND NO. 1 IS GENERAL IN NATURE AND DOES NOT R EQUIRE ANY ADJUDICATION, HENCE THE SAME IS DISMISSED. 3. THE MAIN GRIEVANCE OF THE ASSESSEE IS AGAINST TH E ACTION OF LD. CIT(A) IN CONFIRMING THE PENALTY OF RS.8,50,367 LEVIED BY THE AO U/S. 27 1(1)(C) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 3. BRIEFLY STATED FACTS ARE THAT THE DURING THE ASS ESSMENT PROCEEDINGS THE AO MADE VARIOUS ADDITIONS AND DISALLOWANCES TO THE INCOME O F THE ASSESSEE AS ACCORDING TO AO THERE WAS NO EXPLANATION FORTHCOMING FROM THE ASSESSEE. A CCORDING TO AO, THE DISALLOWANCE/ADDITIONS ARE REASONABLE AND HE FELT T HAT IT IS A FIT CASE OF INITIATION OF PENALTY 2 ITA NO.696/KOL/2018 USHA AUDIOTEL L IMITED , AY- 1997-98 U/S. 271(1)(C) OF THE ACT AND, THEREAFTER, HE IMPOS ED PENALTY OF RS.8,50,367/- ON THE ASSESSEE FOR CONCEALMENT OF PARTICULARS OF INCOME. AGGRIEVE D, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO CONFIRMED THE ACTION OF AO. AG GRIEVED, ASSESSEE IS BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT AT THE OUTSET ITSELF, THE LD. A R DREW OUR ATTENTION TO THE FACT THAT THIS APPEAL IS AGAINST THE PENALTY LEVIED BY THE AO WHIC H HAS BEEN CONFIRMED BY THE LD. CIT(A). THE MAIN ISSUE WHICH THE ASSESSEE RAISES IS A LEGAL ISSUE WHEREIN ACCORDING TO HIM, THE AO WHILE FRAMING ASSESSMENT ORDER HAS NOT GIVEN CLEAR DIRECTION FOR INITIATION OF LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT BUT SIMPLY HAS MADE AN EN DORSEMENT AT THE END OF THE ASSESSMENT ORDER THAT PENALTY U/S. 271(1)(C) IS INITIATED SEPARATELY , WHICH IS NOT SUFFICIENT TO ASSUME JURISDICTION TO INVOKE PENALTY U/S. 271(1)(C) OF TH E ACT. ACCORDING TO LD. COUNSEL, EVEN THOUGH SECTION 271(1B) WHICH HAS BEEN INSERTED BY T HE PARLIAMENT WITH RETROSPECTIVE EFFECT SAYS THAT IF THE AO INITIATES PENALTY U/S. 271(1)(C ) OF THE ACT IN THE ASSESSMENT ORDER ITSELF THEN IT WOULD BE DEEMED THAT THE AO IS SATISFIED TO PROCEED AGAINST THE ASSESSEE U/S. 271(1)(C) OF THE ACT, HOWEVER BY NO STRETCH OF IMA GINATION, THE ENDORSEMENT GIVEN BY AO AT THE END OF ASSESSMENT ORDER CAN BE TAKEN AS DIRE CTION TO INITIATE PENALTY. AND SO ACCORDING TO HIM, THE AO WITHOUT GIVING CLEAR DIREC TION OF INITIATION OF PENALTY PROCEEDINGS IN THE ASSESSMENT ORDER, COULD NOT HAVE VALIDLY US URPED THE JURISDICTION TO IMPOSE PENALTY 271(1)(C) OF THE ACT AGAINST THE ASSESSEE. TO BUTT RESS HIS ARGUMENT, THE LD. AR DREW OUR ATTENTION TO A SIMILAR CASE WHEREIN THE SAME ISSUE AROSE IN THE CASE OF CIT VS. MWP LTD. (2014) 41 TAXMANN.COM 496 (KARNATAKA), WHEREIN THE AO IN THE ASSESSMENT ORDER REMARKED THAT PENALTY PROCEEDING IS SEPARATELY INITIATED F ROM WHICH NO SATISFACTION OF THE AO COULD BE DISCERNED AND THE ASSESSEE CHALLENGED THE ACTION OF PENALTY LEVIED BY AO, WHEREIN THE HONBLE KARNATAKA HIGH COURT HAS UPHELD THE ASSESSE ES CONTENTION AS UNDER: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER PASSED BY THE TRIBUNAL SETTING ASIDE THE ORDER IMPOSING PENALTY. 2. THE ASSESSEE IS A LIMITED COMPANY. THEY ARE CARR YING ON BUSINESS OF INVESTMENT. FOR THE ASSESSMENT YEAR 2002-03, ASSESSEE FILED RETURNS DEC LARING LOSS OF RS.44,44,84,483-00. THE LOSS COMPRISED OF THE PROVISIONS FOR DIMINUTION IN THE V ALUE OF INVESTMENT OF RS.4,40,00,000-00. 3 ITA NO.696/KOL/2018 USHA AUDIOTEL L IMITED , AY- 1997-98 THE CASE WAS TAKEN UP FOR SCRUTINY UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. AFTER NOTICING THE PROVISIONS FOR VALUE OF INVESTMENT ON 02.09.2003 A LETTER WAS ADDRESSED TO THE ASSESSEE SEEKING EXPLANATION FOR THE REASONS FOR PR OVIDING FOR DIMINUTION IN THE VALUE OF INVESTMENT IN THE PROFIT AND LOSS ACCOUNT. ON 31.10 .2003 A REPLY WAS SENT RELYING ON THE ACCOUNTING STANDARD 13. HOWEVER IN THE END THE ASSE SSEE MADE IT CLEAR THAT ALTHOUGH THE PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENT IS UNDER THE PROVISIONS OF THE INCOME TAX ACT , THE SAID DECLINE IS NOT ALLOWABLE. ON RECEIPT OF THE SAID EXPLANATION, THE DEPARTMENT WROTE ANOTHER LETTER ON 04.11.2003 CALLING UPON THE ASSES SEE TO CATEGORICALLY STATE WHETHER HE IS WITHDRAWING THE SAID CLAIM. BY LETTER DATED 07.11.2 003 A REPLY WAS SENT STATING THAT CLAIMS REGARDING BOTH THE EXPENDITURE MAY BE KINDLY BE TRE ATED AS WITHDRAWN. THEREAFTER THE ASSESSING AUTHORITY PROCEEDED TO PASS ASSESSMENT OR DER DISALLOWING THE SAID CLAIM OFRS.4,40,00,000-00. THEREAFTER IT WAS OBSERVED IN THE END OF THE ORDER THAT 'PENALTY UNDER U/S 271(1)(C) INITIATED SEPARATELY'. 3. THE ASSESSEE CONTESTED THE SAID PROCEEDINGS BY C ONTENDING THAT ON THE DATE OF LEVY OF PENALTY, THE ASSESSEE CEASED TO EXIST INASMUCH AS T HE SAME WAS MERGED WITH THE UB HOLDINGS LTD., VIDE KARNATAKA HIGH COURT ORDER DATED 31.08.2 005. IT WAS CONTENDED THAT THE NOTICE ISSUED IN PROCEEDINGS IS INVALID. ON MERITS, IT WAS CONTENDED THAT THE ASSESSEE HAD WITHDRAWN THE CLAIM OF DIMINUTION IN VALUE OF INVESTMENT WITH INTENTION TO BUY PEACE. THE ASSESSEE BEING AN INVESTMENT COMPANY, THE DIMINUTION IN VALUE OF I NVESTMENT WAS AN ALLOWABLE CLAIM THEREBY ESTABLISHING THE BONAFIDES OF THE ASSESSEE. THEY AL SO PRESSED INTO SERVICE THE ACCOUNTING STANDARD 13 ISSUED BY ICAI IN SUPPORT OF THEIR CLAI M. THE ISSUE WAS DEBATABLE. HOWEVER THE ASSESSING AUTHORITY OVER-RULED THE OBJECTIONS AND I MPOSED PENALTY. 4. THE ASSESSEE PREFERRED AN APPEAL TO THE COMMISSI ONER OF INCOME TAX (APPEALS), WHICH CAME TO BE DISMISSED. 5. IT IS AGAINST THE SAID ORDER, THE ASSESSEE PREFE RRED AN APPEAL TO THE TRIBUNAL. THE TRIBUNAL ON RECONSIDERATION OF THE ENTIRE MATERIAL ON RECORD HELD THAT THE ASSESSEE HAD FILED THE RETURN OF INCOME DECLARING LOSS. THEREAFTER THE CLAIM FOR WRITE DOWN OF INVESTMENT LOSS WAS WITHDRAWN DURING THE COURSE OF ASSESSMENT. ULTIMATE LY THE ASSESSMENT RESULTED IN POSITIVE INCOME OF RS.1,28,740-00. THERE WAS A FURTHER CHANG E IN THE TOTAL INCOME COMPUTED AS A RESULT OF RECTIFICATION UNDER SECTION 154 , THEREBY FINAL POSITION IS THAT THE LOSS RETURNED IS ASSESSED AT 'NIL'. THE CLAIM OF RS.4,40,00,000-00 W AS ALSO WITHDRAWN BY THE ASSESSEE EVEN BEFORE ANY MEANINGFUL QUERY OR INVESTIGATION WAS CA RRIED OUT BY THE DEPARTMENT. BEING A COMPANY, IT WAS MANDATORY THAT THE ACCOUNT OF THE A SSESSEE IS PREPARED IN LINE WITH THE ACCOUNTING STANDARD AS, OTHERWISE, THE RESULTS DECL ARED BY THE ASSESSEE WOULD NOT REFLECT TRUE AND FAIR VIEW. THE WITHDRAWAL WAS ONLY TO BUY PEACE FROM THE DEPARTMENT AND TO AVOID LITIGATION. AFTER REFERRING TO THE STATUTORY PROVIS IONS AND THE JUDGMENT OF THE APEX COURT IN THE CASE OF K.C. BUILDERS & ANOTHER VS. ACIT (265 ITR 5 62) (SC), THE TRIBUNAL HELD THAT THERE IS NO CASE FOR CONCEALMENT, AS IN THIS CASE T HERE IS NO LOSS OF REVENUE. THEREFORE THE IMPOSITION OF PENALTY WAS SET ASIDE. 6. AGGRIEVED BY THE SAID ORDER, THE REVENUE IS IN A PPEAL. 7. THE LEARNED COUNSEL FOR THE REVENUE ASSAILING TH E IMPUGNED ORDER CONTENDED THAT THOUGH THE ASSESSEE KNEW THAT THE DIMINUTION IN THE VALUE OF THE INVESTMENT IS NOT ALLOWABLE UNDER THE INCOME TAX ACT , STILL THE CLAIM WAS MADE. IT IS ONLY DURING SECTION 143(3) PROCEEDINGS, WHEN EXPLANATION WAS SOUGHT FOR, THE SAID CLAIM WAS WITHDRAWN. THEREFORE IT IS A CASE OF FURNISHING INCORRECT PARTICULARS AND IF SCRUTINY PR OCEEDINGS HAD NOT BEEN INITIATED, THE ASSESSEE WOULD HAVE GOT THE BENEFIT OF THE DIMINUTI ON IN VALUE. THEREFORE HE SUBMITS THAT A CASE FOR IMPOSITION OF PENALTY WAS MADE OUT. EVEN A FTER DISALLOWING THE SAID DIMINUTION IN 4 ITA NO.696/KOL/2018 USHA AUDIOTEL L IMITED , AY- 1997-98 VALUE, THE ASSESSEE IS NOT LIABLE TO PAY TAX AS THE ASSESSEE WAS UNDER LOSS AND THAT IS NO REASON FOR NOT CLAIMING PENALTY AS HELD BY THE APEX COURT. LASTLY IT WAS CONTENDED THAT EVEN IN THE ABSENCE OF A DIRECTION IN THE ASSESSMENT ORDER, TO INITIATE PENALTY PROCEEDINGS THE DEEMING PROVISION IS APPLICABLE AND PROCEEDINGS INITIATED I S IN ACCORDANCE WITH LAW. 8. PER CONTRA, THE LEARNED SENIOR COUNSEL APPEARING FOR THE ASSESSEE CONTENDED THAT EVEN THOUGH THE DEEMING PROVISION IS ATTRACTED, SATISFAC TION OF THE CONCEALMENT IS NOT TO BE FOUND IN THE ORDER OF ASSESSMENT, STILL ONLY IF THE ASSESSIN G AUTHORITY IS SATISFIED THAT IT IS A CASE OF CONCEALMENT, HE HAS TO PASS A DIRECTION FOR INITIAT ION OF PROCEEDINGS. IF THAT DIRECTION IS NOT THERE IN THE ORDER, THE ENTIRE PROCEEDINGS INITIATE D IS VITIATED. SECONDLY HE CONTENDED THAT DIMINUTION IN VALUE OF THE ASSETS WAS CLAIMED AS A BUSINESS LOSS. IT WAS POINTED OUT THAT IN ORDER TO PURCHASE PEACE AND TO AVOID LITIGATION, TH EY HAVE WITHDRAWN THE CLAIM. THEREFORE THERE WAS NO INTENT TO CONCEAL THE SAID AMOUNT. THE REFORE, SECTION 271 OF THE ACT IS NOT ATTRACTED. 9. IN THE LIGHT OF THE AFORESAID FACTS AND RIVAL CO NTENTIONS THE SUBSTANTIAL QUESTION OF LAW WHICH ARISES FOR CONSIDERATION IN THIS APPEAL IS AS UNDER : 'WHETHER THE TRIBUNAL WAS CORRECT IN HOLDING THAT P ENALTY UNDER SECTION 271(1)(C) OF THE ACT, CANNOT BE LEVIED AS THERE WAS NO CONCEALMENT, NO LO SS OF REVENUE AND SUBSEQUENT WITHDRAWAL WAS WITH NO ULTERIOR MOTIVE ?' 10. SECTION 271(1)(C) OF THE ACT, WAS THE SUBJECT MATTER OF INTERPRETATI ON BY THIS COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. MANJUNATHA C OTTON & GINNING FACTORY REPORTED IN (2013) 35 TAXMANN.COM 250 (KARN ATAKA). INTERPRETING THE DEEMING PROVISIONS IT HAS BEEN HELD AS UNDER: '48. AS THE OPENING WORDS OF EXPLANATION 1 MAKES IT CLEAR WHERE IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WH ICH IS FOUND TO BE FALSE OR OFFERS AN EXPLANATION WHICH IS NOT ABLE TO SUBSTANTIATE AND F AILS TO PROVE THAT SUCH EXPLANATION IS BONAFIDE, THEN THE AMOUNT ADDED OR DISALLOWED IN CO MPUTING THE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL FOR THE PURPOSES OF CLAUS E (C) OF THIS SUB- SECTION BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULAR S HAVE BEEN CONCEALED. THEREFORE, IT IS CLEAR THAT AFORESAID INSTANCES BY ITSELF DO NOT CONSTITUTE CONCEALMENT. THE ASSESSING OFFICERS WERE JUST WRITING AT THE END OF THE ASSESSMENT ORDER THAT PENALTY PROCEEDINGS ARE INITIATED OR SOMETHING TO THE EFFEC T. THE DELHI HIGH COURT IN THE CASE OF RAM COMMERCIALS HAS HELD THAT SUCH A NOTE ALONE IN THE ASSESSMENT ORDER DOES NOT SATISFY THE REQUIREMENT OF ASSUMING JURISDICTION IN LAW IN RESP ECT OF THE INITIATION OF PENALTY PROCEEDINGS. THE SATISFACTION SHOULD BE IN THE ASSESSMENT ORDER. THE SAID VIEW WAS ALSO APPROVED BY THE FULL BENCH OF THE DELHI HIGH COURT IN THE CASE OF R AMPUR ENGINEERING REPORTED IN 309 ITR 143. THE SAID VIEW HAS BEEN APPROVED BY THE APE X COURT IN THE CASE OF DILIP SHROFF REPORTED IN 291 ITR 591. THAT IS THE VIEW THE COURT S HAVE CONSISTENTLY TAKEN. AFTER TAKING NOTE OF THE JUDICIAL PRONOUNCEMENTS IN THIS REGARD, THE LEGISLATURE THOUGHT IT FIT TO INSERT SECTION 271(1)(B) , WHICH READS AS UNDER: '271(1)(B) WHERE ANY AMOUNT IS ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME OR LOSS OF AN ASSESSEE IN ANY ORDER OF ASSESSMENT OR REASSESSM ENT AND THE SAID ORDER CONTAINS A DIRECTION FOR INITIATION OF PENALTY PROCEEDINGS UND ER CLAUSE (C) OF SUB-SECTION (1), SUCH AN ORDER OF ASSESSMENT OR REASSESSMENT SHALL BE DEEMED TO CONSTITUTE SATISFACTION OF THE ASSESSING OFFICER FOR INITIATION OF THE PENALTY PROCEEDINGS U NDER THE SAID CLAUSE (C).' 5 ITA NO.696/KOL/2018 USHA AUDIOTEL L IMITED , AY- 1997-98 49. BY THE AFORESAID DEEMING PROVISION A LEGAL FICT ION IS CREATED. WHEN THE ASSESSMENT ORDER CONTAINS A DIRECTION FOR INITIATION OF PENALTY PROC EEDINGS SUCH ORDER SHALL DEEM TO CONSTITUTE SATISFACTION OF THE ASSESSING OFFICER FOR INITIATIO N OF PENALTY PROCEEDINGS UNDER SUB-CLAUSE (C) OF SECTION 271 OF THE ACT. AS THE LANGUAGE OF SECTION 271 MAKES IT CLEAR BEFORE A DIRECTION IS ISSUED TO PAY PENALTY, THE PERSON ISSUING THE DIREC TION MUST BE SATISFIED ABOUT THE CONDITION MENTIONED IN CLAUSE (C) OF SECTION 271(1) . THE QUESTION IS, WHETHER SUCH SATISFACTION SHOULD BE IN WRITING. AS THE SATISFACTION HAS TO BE IN THE CO URSE OF ANY PROCEEDINGS AND IT IS AT THE TIME OF COMPUTATION OF THE TOTAL INCOME OF ANY PERSON AND A S IT RESULTS IN AN ASSESSMENT ORDER WHICH HAS TO BE MANDATORILY IN WRITING, THE SATISFACTION SHOULD BE FOUND IN THE SAID ORDER. THE EXISTENCE OF THESE FACTS IS A CONDITION PRECEDENT F OR INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271 . THIS PROVISION IS ATTRACTED ONCE IN ANY SUCH ASSE SSMENT ORDERS, A DIRECTION FOR INITIATION OF PENALTY PROCEEDINGS UNDER CLAUSE (C) OF SUB- SECTION (1) IS MADE. THEREBY, IT MEANS EVEN IF THE ORDER DOES NOT CONTAIN A SPECIFIC FINDING THAT THE ASSESSEE HAS CONCEALED INCOME OR HE IS DEEMED TO HAVE CONCEALED INCOME BEC AUSE OF THE EXISTENCE OF FACTS WHICH ARE SET OUT IN EXPLANATION 1, IF A MERE DIRECTION TO IN ITIATE PENALTY PROCEEDINGS UNDER CLAUSE (C) OF SUB- SECTION (1) IS FOUND IN THE SAID ORDER, BY LEG AL FICTION, IT SHALL BE DEEMED TO CONSTITUTE SATISFACTION OF THE ASSESSING OFFICER FOR INITIATIO N OF PENALTY PROCEEDINGS UNDER SAID CLAUSE (C). THE SAID PROVISION CAME UP FOR INTERPRETATION BY TH E DELHI HIGH COURT IN THE CASE OF MADHUSHREE GUPTA REPORTED IN 317 ITR 107, WHEREIN T HE DELHI HIGH COURT HELD THAT THE SATISFACTION SHOULD BE DISCERNABLE IN THE ASSESSMEN T ORDER. POSITION POST AMENDMENT IS NOT IN MUCH VARIANCE WITH PRE- AMENDMENT. THEY HELD THAT P ROVISIONS WILL FALL FOUL OF ARTICLE 14 OF THE CONSTITUTION IF THE SAME IS NOT READ IN THE MAN NER IT HAS READ AND IN FACT HAS READ DOWN THE PROVISIONS TO HOLD IT CONSTITUTIONAL. THEREFORE ACC ORDING TO DELHI HIGH COURT, IN POST AMENDMENT AND PRE AMENDMENT THERE IS NOT MUCH DIFFE RENCE AND THE SATISFACTION IS REQUIRED TO ARRIVED IN THE COURSE OF ASSESSMENT PROCEEDINGS AND SHOULD BE DISCERNABLE IN THE ASSESSMENT ORDER. THEREFORE, THIS PROVISION MAKES IT ABUNDANTL Y CLEAR THAT SATISFACTION OF THE ASSESSING OFFICER BEFORE INITIATION OF PENALTY PROCEEDINGS IS A MUST. THE SATISFACTION SHOULD BE THAT HE HAS CONCEALED PARTICULARS OF HIS INCOME OR FURNISHE D INACCURATE PARTICULAR OF SUCH INCOME AND EVEN IN THE ABSENCE OF THOSE EXPRESSED WORDS OR FIN DINGS RECORDED IN THE ASSESSMENT PROCEEDINGS, IF A DIRECTION AS AFORESAID IS MENTION ED, IT CONSTITUTES SATISFACTION OF THE ASSESSING OFFICER. DIRECTION 50. A READING OF SECTION CLEARLY INDICATES THAT THE ASSESSMENT ORDER SHOULD CONTAIN A DIRECTION FOR INITIATION OF PENALTY PROCEEDINGS. THE MEANING OF THE WORD DIRECTION IS OF IMPORTANCE. MERELY SAYING THAT PENALTY PROCEEDINGS ARE BEING IN ITIATED WILL NOT SATISFY THE REQUIREMENT. THE DIRECTION TO INITIATE PROCEEDINGS SHOULD BE CLE AR AND NOT BE AMBIGUOUS. IT IS WELL SETTLED LAW THAT FISCAL STATUTES ARE TO BE CONSTRUED STRICT LY AND MORE SO THE DEEMING PROVISIONS BY WAY OF LEGAL FICTION ARE TO BE CONSTRUED MORE STRICTLY. THEY HAVE TO BE INTERPRETED ONLY FOR THE SAID ISSUE FOR WHICH IT HAS DEEMED AND THE MANNER IN WHI CH THE DEEMING HAS BEEN CONTEMPLATED TO BE RESTRICTED IN THE MANNER SOUGHT TO BE DEEMED. AS THE WORDS USED IN THE LEGAL FICTION OR THE DEEMING PROVISIONS OF SECTION 271(1B) IS DIRECTION, IT IS IMPERATIVE THAT THE ASSESSMENT ORDER CONTAINS A DIRECTION. USE OF THE PHRASES LIKE (A) P ENALTY PROCEEDINGS ARE BEING INITIATED SEPARATELY AND (B) PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) ARE INITIATED SEPARATELY, DO NOT COMPLY WITH THE MEANING OF THE WORD DIRECTION A S CONTEMPLATED EVEN IN THE AMENDED PROVISIONS OF LAW. THE DIRECTION SHOULD BE CLEAR AN D WITHOUT ANY AMBIGUITY. THE WORD 'DIRECTION' HAS BEEN INTERPRETED BY THE DECISION OF THE APEX COURT IN THE CASE OF RAJENDRANATH REPORTED IN 120 ITR PG.14, WHERE IT HA S BEEN HELD THAT IN ANY EVENT WHATEVER ELSE IT MAY AMOUNT TO, ON ITS VERY TERMS T HE OBSERVATION THAT THE ITO IS FREE TO TAKE ACTION, TO ASSESS THE EXCESS IN THE HAND OF THE CO- OWNERS CANNOT BE DESCRIBED AS A DIRECTION. A DIRECTION BY A STATUTORY AUTHORITY IS IN THE NATURE OF AN ORDER REQUIRING POSITIVE COMPLIANCE. 6 ITA NO.696/KOL/2018 USHA AUDIOTEL L IMITED , AY- 1997-98 WHEN IT IS LEFT TO THE OPTION AND DISCRETION OF THE ITO WHETHER OR NOT TAKE ACTION, IT CANNOT BE DESCRIBED AS A DIRECTION. 51. THEREFORE, IT IS SETTLED LAW THAT IN THE ABSENC E OF THE EXISTENCE OF THESE CONDITIONS IN THE ASSESSMENT ORDER PENALTY PROCEEDINGS COULD NOT BE P ROCEEDED WITH. THE PROCEEDINGS WHICH ARE INITIATED CONTRARY TO THE SAID LEGAL POSITION A RE LIABLE TO BE SET ASIDE.' 11. IN THE INSTANT CASE IN THE ASSESSMENT ORDER WHA T HAS BEEN SAID REGARDING DIMINUTION IN THE VALUE OF INVESTMENT IS AS UNDER: '1. PROVISIONS FOR DIMINUTION IN THE VALUE OF INVES TMENT: THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.4,40,00,000/- UNDER THIS HEAD. THIS HAS BEEN CLAIMED AS A REVENUE EXPENDITURE AND INCLUDED IN THE LOSS OF RS.4,44,84,483/- SHOWN UNDE R THE HEAD BUSINESS OR PROFESSION. ON ENQUIRY IT IS INTIMATED BY THE COMPANY THAT THER E IS A DIMINUTION IN THE VALUE OF INVESTMENT ON ACCOUNT OF THE ASIAN AGE SOUTH LTD., IT WAS FURT HER STATED IN THE LETTER DATED 2-9-2003, THAT ACCORDING TO THE COMPANY IT FORMS A PART OF THE LOS S OF THE COMPANY. THE ASSESSEE WAS REQUESTED TO FURNISH FACTUAL AND LEGAL JUSTIFICATIO N OF THE CLAIM. IN REPLY VIDE LTR. DT. 31-10-03, THE PROCEDURE OF VALUATION AS PER ACCOUNTING STANDA RD NO.13 WAS EXPLAINED, HOWEVER IN THE LAST PARA IT WAS STATED THAT THE COMPANY IS OF THE VIEW THAT UNDER THE PROVISIONS OF THE I.T. ACT , THE SAID CLAIM IS NOT ALLOWABLE. THE COMPANY WAS AG AIN REQUESTED TO INTIMATE WHETHER THE CLAIM IS BEING WITHDRAWN. VIDE LETTER DT. 10-11-03, IT IS STATED THAT THE CLAIM IS BEING WITHDRAWN. IN VIEW OF THIS THE CLAIM OF RS.4,40,00, 000/- IS NOT CONSIDERED FOR COMPUTATION AND CLAIM DISALLOWED.' THEREAFTER, IN THE END, IT IS STATED AS UNDER: 'PENALTY U/S 271(1)(C) INITIATED S EPARATELY.' 12. A READING OF THE AFORESAID ORDER MAKES IT CLEAR THAT ASSESSING AUTHORITY WAS NOT SATISFIED THAT THERE IS ANY CONCEALMENT OF THE INTENT. FURTHE R THERE IS NO DIRECTION FOR INITIATION OF PENALTY PROCEEDINGS COULD BE GATHERED FROM THE SAID ORDER ALSO. IT IS HELD IN THE AFORESAID JUDGMENT THAT (A) PHRASES LIKE PENALTY PROCEEDINGS ARE BEING INIT IATED SEPARATELY (B) PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) ARE INITIATED SEPARATELY DO NOT COMPLY WITH THE ME ANING OF THE WORD DIRECTION AS CONTEMPLATED EVEN IN THE AMENDED PROVI SIONS OF LAW. THE DIRECTION SHOULD BE CLEAR AND WITHOUT ANY AMBIGUITY. THE WORD 'DIRECTIO N' HAS BEEN INTERPRETED BY THE DECISION OF THE APEX COURT IN THE CASE OF RAJENDRANATH 120 ITR PG.14, WHERE IT HAS BEEN HELD THAT IN ANY EVENT WHATEVER ELSE IT MAY AMOUNT TO, ON ITS VERY T ERMS THE OBSERVATION THAT THE ITO IS FREE TO TAKE ACTION, TO ASSESS THE EXCESS IN THE HAND OF TH E CO-OWNERS CANNOT BE DESCRIBED AS A DIRECTION. A DIRECTION BY A STATUTORY AUTHORITY IS IN THE NATURE OF AN ORDER REQUIRING POSITIVE COMPLIANCE. WHEN IT IS LEFT TO THE OPTION AND DISCR ETION OF THE ITO WHETHER OR NOT TAKE ACTION, IT CANNOT BE DESCRIBED AS A DIRECTION. 13. IN THE ABSENCE OF SUCH A DIRECTION, THE DEEMING PROVISION IS NOT ATTRACTED. THEREFORE THE CONDITIONS PRESCRIBED UNDER SECTION 271(1)(C) OF THE ACT, IS NOT ATTRACTED. THEREFORE THE TRIBUNAL WAS JUSTIFIED IN SETTING ASIDE THE ORDER P ASSED BY THE ASSESSING AUTHORITY AS WELL AS THE APPELLATE AUTHORITY, IMPOSING PENALTY. NO MERIT S. DISMISSED. THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAIN ST THE REVENUE. 7 ITA NO.696/KOL/2018 USHA AUDIOTEL L IMITED , AY- 1997-98 5. FROM THE READING OF THE AFORESAID ORDER OF THE H ONBLE KARNATAKA HIGH COURT IT IS EVIDENT THAT FACTS AND LAW BEING THE SIMILAR AND SO THE RATIO IS SQUARELY APPLICABLE IN THIS MATTER ON THE ISSUE RAISED BY THE ASSESSEE, THEREFO RE, WE FIND THAT THE DIRECTION FOR INITIATION OF PENALTY PROCEEDINGS COULD NOT BE GATHERED FROM T HE ASSESSMENT ORDER, SINCE IN THE ASSESSMENT ORDER THE AO AT THE END THE AO HAS MEREL Y STATED PENALTY U/S. 271(1)(C) OF THE ACT ARE SEPARATELY INITIATED DO NOT COMPLY WITH THE MEANING OF THE WORD DIRECTION AS CONTEMPLATED EVEN AS PER THE AMENDMENT INSERTED U/ S. 271(1B) OF THE ACT. IN THE ABSENCE OF CLEAR AND UNAMBIGUOUS DIRECTION AS CONTEMPLATED UNDER LAW BY THE AO IN THE ASSESSMENT ORDER, IT CANNOT BE CONSIDERED AS DIRECTION AS PER LAW TO INITIATE PENALTY U/S. 271(1)(C) OF THE ACT. IN THE AFORESAID FACTUAL SCENARIO, AND THE LA W AS LAID BY THE HONBLE KARNATAKA HIGH COURT IN MWP LTD. (SUPRA) WE CANCEL THE PENALTY LE VIED BY THE AO. THEREFORE, WE CANCEL THE PENALTY IMPOSED U/S. 271(1)(C) OF THE ACT. THIS GROUND OF APPEAL OF ASSESSEE IS ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 23RD JANUA RY, 2019. SD/- SD/- (P. M. JAGTAP) (ABY. T. VARKEY) VICE PRESIDENT JUDICIAL MEMBER DATED : 23RD JANUARY, 2019 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT USHA AUDIOTEL LIMITED (SINCE STRUCK OFF) BY BASANT KUMAR JHAWAR, 54F, GARIAHAT ROAD, KOLKATA-700 019. 2 RESPONDENT ITO, WARD-11(1), KOLKATA 3. 4. CIT(A)-11, KOLKATA. (SENT THROUGH E-MAIL) CIT- , KOLKATA. 5. DR, ITAT, KOLKATA. (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, ASSISTANT REGISTRAR