R.C Lahoti, J.— This common order shall govern the disposal of CWP 3868, 3869 and 3870 of 1997 between the same parties.
2. The assessee derives income from manufacture of high class polypropyline and polythene tubing films and bags. For the assessment year 1991-1992 return of income was filed on 29.1.1991 declaring income of Rs. 29,910/-. During the course of assessment proceedings, it was noticed, inter alia, that M/S. R.R Jindal had advanced a loan in cash totalling to Rs. 30,000/- to the assessee. The assessee was confronted with the provisions of Section 269-SS(b) of the Income-tax Act, 1961 whereupon he surrendered the said amount to be treated as income of the previous year. The assessing officer accepted the surrender as income of the assessee. The interest paid by the assessee on the loan of Rs. 30,000/- @ 10% p.a was also disallowed and added back to the income of the assessee. By order of assessment dated 31.8.1992, the assessing officer also directed as under:—
“Penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income and under Section 271D for accepting the loan of Rs. 30,000/- in cash in violation of provisions of Section 269-SS have been initiated separately.”
2.1 The assessee went in revision against the order of assessment challenging the quantum of income fixed by the assessing officer. The revision was dismissed by order dated 20.10.1994
2.2 The order of assessment and the order dismissing the revision petition filed by the assessee are subject matter of CWP 3870/97.
2.3 Notice under Section 271-(1)(c) calling upon the petitioner-assessee to show cause why the penalty be not levied on him was issued to him. In response to this show cause notice the assessee did not offer any explanation though ample opportunity was allowed for the purpose. The assessing officer formed an opinion that as the assessee had no explanation to offer for not disclosing the correct income, the assessee had concealed the particulars of his income and furnished inaccurate particulars leading to the addition of Rs. 30,000/-. A penalty of Rs. 31586/- equal to 200% of the tax sought to be evaded was levied on the assessee vide order dated 5.3.93
3.1 As against this order, the petitioner preferred a revision under Section 264 of the Act which has been dismissed by order dated 21.10.1994
3.2 The order of penalty under section 271(1)(c) and the order rejecting the revision petition there against are the subject matter of CWP 3869/97.
4. Notice under Section 271D was also issued to the petitioner. The petitioner filed a reply submitting that the loan having been surrendered as income, he was not liable to penalty. A penalty of Rs. 30,000/- was imposed on the petitioner by order dated 26.3.93
4.1 The petitioner preferred a revision against the said order which has been dismissed by order dated 20.10.1994
4.2 Penalty order under Section 271-D of the Act and the order dismissing the revision thereagainst are subject matter of CWP 3868/97.
5. So far as CWP 3870/97 is concerned, after hearing the learned counsel for the parties we are of the opinion that no fault can be found with the impugned orders. The assessee had himself surrendered the amount to be treated as income and therefore, the assessing officer was fully justified in treating the amount of loan as initially claimed and interest claimed to have been paid thereon as income. This petition is liable to be dismissed.
6. As to penalty under section 271(1)(c) and under Section 271-D the common submission raised by the learned counsel for the petitioner is based on the record of the proceedings. It is submitted that a letter is available on the record of the assessing officer which is signed by the assessee's counsel and addressed to the assessing officer reading as under:—
“Re: M/s Dewan Enterprises, WZ-18, Hari Singh Park, Delhi.
Reference discussion, the undersigned on behalf of the above assessee and to buy peace, hereby surrenders an amount of Rs. 28,000/- on account of drawings of Smt Roshni Devi and Rs. 32,000/- on account of drawing of Sh Roshan Lal and further agrees to the addition of cash loans raised by the firm from Shri R.R Jindal of Rs. 30,000/- (Rupees thirty thousand only) subject to no imposition of penalty and interest.”
7. It is submitted by the learned counsel for the petitioner that the assessing officer had directed Shri R.R Jindal to be produced along with his accounts books for verifying the correctness of the loan claimed to have been taken from him by the as-sessee. The assessee did not wish to be lodged into any controversy and probably the queries might also have invited some trouble for Jindal and hence was reluctant to appear before the assessing officer. The assessee thought of and was also advised to surrender the income which he did subject to the condition that no penalty and interest would be levied on him. The surrender having been accompanied by a condition accepted by the assessing officer, and in any case which would be deemed to have been accepted, no penalty was leviable. The learned standing counsel for the Revenue has pointed out that the assessing officer had never accepted any condition accompanying the surrender, rather it was unconditional as is reflected by the or-dersheet dated 25.8.92 which does not make any mention of any written letter or communication by or on behalf of the assessee and simply records:
“Present Mr S.K Garg asked to show cause why addition be not made on low drawings, produce the persons arid bank pass books. He was asked to show cause as to why the loan amount of Rs. 30,000.taken at different times in cash be not added in the income of the previous year under Section 269(ss).
He agreed to surrender an amount of Rs. 60,000/- on account of drawing and Rs. 30,000/- on account of cash loans. Case discussed.
8. The learned counsel for the petitioner placed reliance on Sir Shadi Lal Sugar and General Mills v. CIT Delhi, (1987) 168 ITR 705 SC, CIT West Bengal v. Amlendu Pal, (1984) 146 ITR 439 Cal. CIT v. Mansa Ram & Sons (1977) 106 ITR 307 All and ACIT v. Kishan Singh Chand (1977) 106 ITR 534 all in support of the submissions that mere addition of income to the one returned by the assessee would not necessarily make out a case for levying penalty unless and until mens rea was proved. The learned Sr Standing Counsel for Revenue submitted that the decisions relied on by the petitioner are referable to the period prior to substantial amendments effected in the text of Section 271 of the Income-tax Act and have, therefore, no applicability to the facts of the case at hand. He placed reliance on the recent Supreme Court judgment in Commissioner Of Income Tax (Additional), Lucknow v. Jeevan Lal Sah., 1994 (205) ITR 244 SC.
9. The relevant part of Section 271 reads as under:
271.(1) If the Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person—)
(b) xxx xxx xxx
(c) has concealed the particulars of his income or [***] furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,-
xxx xxx xxx
xxx xxx xxx
(iii). in the case referred to in clause(c) in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income:
Explanation 1.- Where in respect of any facts material to the computation of the total income of any person under this Act.-
(A) Such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) to be false, or
(B) Such person offers an explanation which he is not able to substantiate [and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him].
then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.”
The expression “furnished inaccurate particulars of such income” in clause (c) of sub-section (1) of Section 271 was preceded by the word “deliberately” which has been omitted by the Finance Act, 1964 w.e.f 1.4.1964 The Explanation-1 has been inserted by the Finance Act, 1964 but substituted in the present form by the Taxation Laws (Amendment) Act, 1975 w.e.f 1.4.1976 A material part of clause B of the Explanation-1 was added w.e.f 10.9.86 Out of the cases relied on by the learned counsel for the petitioner to the Supreme Court decision in the case of Sir Shadi Lal Sugar & Genl Mills Ltd (supra) relates to assessment year 1958-1959 made in the 1922 Act. Amlendu Pal's case relates to a return filed on 28.6.63 Mansa Ram & Son's case relates to assessment year 1951-1952 and Kishan Singh Chand's case relates to assessment year 1967-1968. Pre-amend-ment decisions are based on Section 271 as interpreted by the Supreme Court in the case of Commissioner Of Income Tax, West Bengal v. Anwar Ali , 1970 (76) ITR 696 which has no applicability to the post-amendment cases.
10. In CIT v. Jeewan Lal Shah (supra) relied on by the learned Sr Standing Counsel for the Revenue, their Lordships have held that the Explanation shifts the burden to the assessee in the situation governed by it. If he fails to establish the same, the presumption will become a finding and it would be open to the authority to levy the penalty. Their Lordships have further held:—
Even after the amendment of 1964, penalty proceedings continue to be penal proceedings, Similarly, the question whether the assessee has concealed the particulars of his income continues to remain a question of fact. Where the Explanation has made a difference is while deciding that question the presumption created by it has to be applied which has the effect of shifting the burden of proof., The rule regarding burden of proof enunciated in Commissioner Of Income Tax, West Bengal v. Anwar Ali (1970 76 ITR 696 (SC) is no longer valid. Whether it is a case of undisclosed or unexplained cash deposit or any other concealment the standard is the same. The principle enunciated in Anwar Ali's case that mere rejection of the explanation of the assessee is not sufficient for levying penalty no longer holds good and it is no longer necessary that the Department must go further and establish that there was no conscious concealment of particulars of income or a deliberate failure to furnish accurate particulars. The cases to which the Explanation is attracted have to be decided in the light of the law enunciated in the cases of Mussadi Ram Bharose [1987] 175 ITR 14 (SC) and Sadayappan [1990] 185 ITR 49 (SC).”
11. Whatever transpired during the assessment proceedings had the effect of the figure of income being enhanced by the assessing officer. He had called upon the assessee to show cause against the proposed levy of penalty in independent proceedings whereat the assessee could have appeared and satisfied the assessing officer of the facts and circumstances in which the assessee had surrendered the income and yet was not liable to penalty. The assessee did not even care to appear before the assessing officer not to talk of furnishing an explanation or the same having been found untenable.
12. We may place on record that the two Allahabad decisions, namely, in the case of Mansa Ram & Sons and in the matter of Kishan Singh Chand were cited before the Allahabad High Court itself in a later decision Blind Ram Hargan Das v. CIT 1988 (121) ITR 390 and distinguished. It was held that mere surrender or acceptance of an amount as income by the assessee at a subsequent stage is not necessarily proof of bonafide inadvertence or omission earlier. It is all a question of fact to be determined in the facts and circumstances of each case. In the case at hand it is a disputed question whether the surrender was accompanied by any condition or not and even if accompanied whether such condition was accepted by the assessing officer. In the counter filed by the Revenue though the availability of the letter referred to in para 6 above and signed by the counsel for the assessee has been accepted, a doubt has been expressed on the exact date on which the letter might have been filed on the record inasmuch as it does not bear any presentation endorsement by the assessing officer and also does not find any reference in the order sheet dated 25.8.92 referred to in para 7 above. We do not propose to enter into this controversy at this stage because recording a finding of fact or re-appraisal thereof is not contemplated within the exercise of writ jurisdiction. The plea in this regard raised by the petitioner assessee before us is liable to be rejected solely for the reason of his failure to appear before the assessing officer in the penalty proceedings.
13. In spite of the above said plea of the petitioner having been rejected, the penalty imposed under section 271(1)(c) has still to be set aside though for a different reason and because the very foundation for initiation of the penalty proceedings is conspicuous by its absence. The opening clause of sub-section (1) of Section 271 itself contemplates a finding as regards satisfaction of availability of grounds under clause (c) being recorded during the assessment proceedings. Recently, in CIT Delhi-3 v. Ram Commercial Enterprises Ltd, (ITC 13/96 decided on 8.10.1998), following the law laid down by their Lordships of the Supreme Court in D.M Mansari v. CIT Gujrat, (1972) 86 ITR 557 and CIT Madras v. SV Angidi Chettiar (1962) 44 ITR 739, we have held that unless requisite satisfaction was recorded in the proceedings under the Act, which would mean the assessment proceedings the jurisdiction to initiate the penalty proceedings could not have been exercised. Satisfaction has to be before the issue of notice or initiation of any step for imposing penalty. In the case at hand we find the assessing officer having nowhere recorded till the conclusion of the assessment proceedings his satisfaction that the assesee had concealed the particulars of his income or furnished inaccurate particulars of such income. This is a jurisdictional defect which cannot be cured. The initiation of the penalty proceedings was itself bad and consequently all the subsequent proceedings leading upto the passing of the penalty order must fail. CWP 3869/97 is, therefore, liable to be allowed.
14. Section 269-SS provides inter alia, that no person shall after the 30th day of June, 1984 take or accept from any other person any loan or deposit otherwise by an account payee cheque or account payee bank draft, if the amount of such loan or deposit or the aggregate thereof is Rs. 20,000.or more. Section 271-D provides if a person takes or accepts any loan or deposits in contravention of the provisions of Section 269-SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted.
15. The record of the proceedings shows that the assessing officer had discarded the theory of assessee having taken any loan. He accepted the surrender of the amount as income of the assessee. It was open to the assessing officer not to accept the surrender, treat the amount as loan and then to hold the petitioner liable to penalty under Section 271-D for non-compliance with Section 269-SS. The assessing officer cannot be permitted to treat the amount of loan as income for the purpose of assessing tax thereon while framing the assessment and at the same time to treat it as loan for the purpose of Sections 269SS read with 271D and subject the transaction to penalty. Such proceedings would be self-contradictory. For non compliance with the provisions of Section 269-SS the genuineness of transaction as loan was doubted by the assessing officer and so the amount was surrendered by the assessee. The surrender was accepted by the assessing officer as income of the assessee. It ceased to be loan and, therefore, the very foundation for initiating the proceedings for and levying penalty under Section 271-D was lost.
16. Sub-section (1) of Section 271D begins with the words “if a person takes or accepts any loan or deposit”. The assessing officer had recorded a finding that the amount of Rs. 30,000/- was the income of the assessee. Impliedly he had recorded a finding that it was neither any loan nor a deposit. The question the provisions of Section 269SS having been contravened was then lost in oblivion and could not have re-arisen at any subsequent stage or in subsequent proceedings. The penalty imposed under Section 271-D read with Section 269-SS cannot therefore be sustained. CWP 3968/97 therefore deserves to be allowed and penalty deserves to be quashed.
17. For the foregoing reasons, CWP 3870/97 laying challenge to the quantum assessment proceedings is dismissed. CWP 3869/97 and 3868/97 respectively laying challenge to penalty orders under section 271(1)(c) and Section 271-D and the orders maintaining the same in revision are allowed and the two penalties are hereby quashed and set aside. All the three petition stand disposed of accordingly though without any order as to costs.