In the ITAT, Delhi Bench E
British Airways Plc.
v.
Dy. Director of Income tax, Circle 2(1)
N.K. KARHAIL, JUDICIAL MEMBER
AND P.M. JAGTAP, ACCOUNTANT MEMBER
INCOME TAX APPEAL NOS. 583 TO 588 (DELHI)
OF 2007
[Assessment year : 1996-97 to 2001-02]
November 23, 2007
Section 271(1)(c) of the Income-tax
Act, 1961 Penalty For concealment of income Assessment years 1996-97 to
2001-02 Whether in order to levy penalty for concealment of income under
section 271(1)(c), Assessing Officer is under an obligation to record
satisfaction as regards assessee having concealed particulars of his income or
having furnished inaccurate particulars of such income during course of
assessment proceedings in assessment order Held, yes Whether requisite
satisfaction, thus, is required to be derived by Assessing Officer during course of original assessment proceedings
itself wherein penalty proceedings are initiated by him and events occurring
subsequent to initiation of penalty proceedings such as appellate orders passed
in quantum proceedings are not relevant in this context and cannot be looked
into or relied upon to ascertain
satisfaction of Assessing Officer Held, yes Assessing Officer
disallowed assessees claim and brought to tax profit derived by assessee company
from business of rendering of engineering and ground handling services to other
airlines in India during relevant assessment years Assessing Officer at end
of assessment orders merely stated that penalty proceedings under section
271(1)(c) were being initiated separately Tribunal having confirmed chargeability of these profits to
tax in India, set aside and restored back matter to Assessing Officer for
making fresh assessment of taxable profits derived by assessee from said
business Thereafter, Assessing Officer in pursuance of orders of Tribunal
determined and assessed taxable profits derived by assessee from aforesaid
business afresh Subsequently Assessing Officer also imposed penalties upon
assessee under section 271(1)(c) for all six years under consideration
Whether since assessment orders passed by Assessing Officer in original
assessment proceedings had not been entirely set aside by Tribunal and it was a
case of limited/partial set aside, only original assessment proceedings were
relevant to ascertain satisfaction of Assessing Officer and order passed by him
in said proceedings alone could be
looked into to find out or ascertain as to whether there was such satisfaction
and same indeed was recorded by him Held, yes Whether since in original
assessment orders there was no reason whatsoever given by Assessing Officer to
show as to why, in his opinion, it was just and proper to initiate penalty
proceedings or at least to show as to why he was satisfied that assessee had concealed particulars of his
income or had furnished inaccurate particulars of such income, it was apparent
that requisite satisfaction about
assessee having concealed
particulars of his income or having furnished inaccurate particulars of
such income was not recorded by Assessing Officer in relevant assessment orders
before initiating penalty proceedings
under section 271(1)(c) and in absence thereof, initiation of penalty
proceedings itself was bad in law and, consequently, penalties imposed in
pursuance of said initiation were liable to be cancelled Held, yes
The assessee-company was incorporated in United Kingdom and was a tax resident of that country. It was mainly engaged in the airline business and had been operating in various countries including India. During the relevant previous years, the assessee company was carrying on its business in India through permanent establishments in the form of its branches located in New Delhi, Mumbai, Chennai and Kolkata. The business so carried on in India comprised of (i) operation of aircraft in international traffic for transportation of passengers, goods and mail to and from India and (ii) rendering of engineering and ground handling services to aircrafts operated by other airlines. The profit derived by the assessee company from the business of operation of aircrafts in international traffic was not taxable in India in view of article 8 read with article 7(9) of the Double Taxation Avoidance Agreement between India and United Kingdom [DTAA]. The Assessing Officer held that the profit derived by the assessee from the business of provision of engineering and ground handling services to other airlines in India was not covered within the ambit of article 8 of DTAA and, therefore, such profit was not eligible for tax exemption in India under the said article. The Assessing Officer, therefore, completed the assessments of the assessee under section 143(3) for all the years under consideration and brought to tax the profit derived by the assessee company from the business of rendering of engineering and ground handling services to other airlines in India during the respective years. The Assessing Officer at the end of the assessment orders merely stated that penalty proceedings under section 271(1)(c) were being initiated separately. On appeal, the Commissioner (Appeals) upheld the order passed by the Assessing Officer. On second appeals, the Tribunal having confirmed the chargeability of these profits to tax in India set aside and restored back the matter to the Assessing Officer for making fresh assessments of taxable profits derived by the assessee company from the said business. The appeals for the three assessment years 1999-2000, 2000-01 and 2001-02 had not been disposed off by the Tribunal and were still pending for disposal. Thereafter the Assessing Officer in pursuance of the orders of the Tribunal determined and assessed the taxable profits derived by the assessee company from the aforesaid business. Subsequently, the Assessing Officer also imposed the penalties upon the assessee under section 271(1)(c) for all the six years under consideration.
On appeals, the Commissioner (Appeals) confirmed the penalties imposed by the Assessing Officer.
On second appeal, the assessee contended that the Assessing Officer at the end of the assessment orders merely stated that due penalty proceedings under section 271(1)(c) were being initiated separately and that in order to levy penalty for concealment of income under section 271(1)(c) there being no satisfaction recorded by the Assessing Officer in the assessment orders as warranted by section 271, the initiation of penalty proceeding under section 271(1)(c) itself was bad in law. As regards the assessee having concealed the particulars of his income or having furnished inaccurate particulars of such income penalty proceedings for all the six years under consideration itself was bad in law.
In the light of catena of decisions, it is well settled that in order to levy penalty for concealment of income under section 271(1)(c) the Assessing Officer is under an obligation to record satisfaction as regards the assessee having concealed the particulars of his income or having furnished inaccurate particulars of such income during the course of assessment proceedings in the assessment order. [Para 17]
The initiation of penalty proceedings as well as issue of notice initiating the penalty proceedings is a consequence of the satisfaction of the Assessing Officer. The requisite satisfaction thus is required to be derived by the Assessing Officer during the course of original assessment proceedings itself wherein the penalty proceedings are initiated by him and the events occurring subsequent to the initiation of penalty proceedings such as the appellate orders passed in the quantum proceedings are not relevant in this context and cannot be looked into or relied upon to ascertain the satisfaction of the Assessing Officer as sought to be contended by the revenue. As regards the revenues reliance on the assessments framed in the set aside proceedings to ascertain the satisfaction of Assessing Officer for initiation of penalty proceedings was concerned a similar issue had come up for consideration before the Punjab & Haryana High Court in the case of Bhagwan Das Vijay Kumar 139 ITR 164 wherein it was held that the levy of penalty based on the assessment order passed in the set aside proceedings is also valid but only in a case where the original assessment had been set aside and penalty proceedings dropped consequent thereon. It was also held by the High Court that there could be fresh penalty proceedings initiated on completion of the fresh assessment. In the instant case, the orders originally passed by the Assessing Officer for the assessment years 1996-97 to 1998-99 had not been entirely set aside by the Tribunal but it was a case of partial set aside inasmuch as the orders of the Assessing Officer on the issue in dispute were upheld by the Tribunal in principal and only the matter of quantification of income was set aside by it to the Assessing Officer for deciding the same afresh. The orders passed by the Assessing Officer originally thus were not completely set aside by the Tribunal nor the penalty proceedings initiated during the course of original assessment proceedings were dropped as a consequence of the Tribunals order. The penalty proceedings initiated in the original assessment proceedings, thus, had never been dropped and the same not only survived throughout but even the penalties were finally imposed in pursuance of the said initiation. In the original assessment orders passed there was an observation recorded by the Assessing Officer to the effect that penalty proceedings under section 271(1)(c) were being initiated. As the assessment orders passed by the Assessing Officer in the original assessment proceedings had not been entirely set aside by the Tribunbal and it was only a case of limited/partial set aside, the penalty proceedings initiated in the said original assessment proceedings continued to survive and the same were never dropped either by any order passed by the Assessing Officer explicitly or even by the implication. Therefore, the contention of the revenue that the order passed by the appellate authorities in the quantum proceedings as well as assessments framed in the set aside proceedings as per the direction of the appellate authority were required to be looked into to ascertain or find out the satisfaction of the Assessing Officer required for initiation of penalty proceedings could not be accepted. Therefore, only the original assessment proceedings were relevant to ascertain the satisfaction of the Assessing Officer and the order passed by him in the said proceedings alone could be looked into to find out or ascertain as to whether there was such satisfaction and the same indeed was recorded by him. [Para 21]
Further the issue as to whether the requisite satisfaction for initiation of penalty proceedings is discernible from the findings/observations recorded by the Assessing Officer in the assessment order is basically a question of fact which is required to be decided on the facts and circumstances involved in each case. [Para 24]
Therefore, only the original assessment proceedings were relevant to ascertain the requisite satisfaction of the Assessing Officer and the order passed by him in the said proceedings alone could be looked into to find out or ascertain as to whether there was such satisfaction recorded by him. Now the question arose as to whether such satisfaction was indeed recorded by the Assessing Officer in the assessment orders passed for the years under consideration during the course of originally assessment proceedings before initiating penalty proceedings. [Para 26]
It is well settled from the decision of the Delhi High Court in the case of CIT v. Ram Commercial Enterprises Ltd 246 ITR 568 that it is the Assessing Officer who has to form his own opinion and record his satisfaction before initiating the penalty proceedings. Merely because the penalty proceedings have been initiated, it cannot be assumed that such a satisfaction was arrived at in the absence of the same being spelt out by the order of the assessing authority. Similarly it is also well settled from the another decision of the Delhi High Court in the case of Dewan Enterprises v. CIT [2000] 246 ITR 571 (Delhi) that where the Assessing Officer had nowhere recorded till the conclusion of the assessment proceedings his satisfaction about the assessee having concealed the particles of his income or having furnished inaccurate particulars of such income, there was, thus, a jurisdictional defect in initiating the penalty proceedings which could not be cured and consequently all the subsequent proceedings leading up to the passing of the penalty order must fail. [Para 28]
In the assessment orders, there was no reason whatsoever given by the Assessing Officer to show as to why, in his opinion, it was just and proper to initiate penalty proceedings or at least to show as to why he was satisfied that the assessee had concealed the particulars of his income or had furnished inaccurate particulars of such income. Therefore, the requisite satisfaction about the assessee having concealed the particulars of his income or having furnished inaccurate particulars of such income was not recorded by the Assessing Officer in the relevant assessment orders before initiating the penalty proceedings under section 271(1)(c) and in the absence thereof, the initiation of penalty proceedings itself was bad in law and, consequently, the penalties imposed by him in pursuance of the said initiation were liable to be cancelled for all the six years under consideration. [Para 29]