KALYAN JYOTI SENGUPTA,J. - (1.) BY an order of this Court dt. 10th Jan., 2007 read with order dt. 20th Jan., 2008 the above appeal under s. 260A of IT Act, 1961 (hereinafter as the said Act) was admitted on the following substantial questions of law : "(i) Whether the AO had any jurisdiction to impose penalty under S. 271(1)(c) of the IT Act, 1961 and the Tribunal was justified in law in holding that the AO had arrived at the requisite satisfaction in course of assessment proceeding in initiating penalty proceeding and his purported findings in that behalf are arbitrary, unreasonable and perverse ? (ii) Whether in any event the Tribunal was justified in law in rejecting affidavit of the appellant without subjecting him to cross-examination and its purported findings that the appellant's case filed under cl. (b) of the Expln. 1 to S. 271(1)(c) and upholding imposition of penalty are arbitrary, unreasonable and perverse ?"
(2.) THE facts leading to preferring this appeal for upsetting the judgement of the learned Tribunal are shortly put hereunder : The appellant is the surgeon (Gynaecology) by profession and as such running a nursing home in the District of Hooghly. He returned his income for the asst. yr. 2001-2002, of Rs. 2,18,390. The AO, however did not accept the returned income to be his annual income of the previous year. The appellant/assessee submitted daily case register in Form 3C furnishing the cases handled by him during the relevant previous year in course of assessment proceeding. The AO in order to verify correctness of the receipt shown by the assessee in the said Form 3C issued notice under ss. 133(c) (sic) and 131 to the nursing home concerned. On information and materials having been collected from two nursing homes the AO found that a large number of cases handled by the assessee were not shown in Form 3C and in some cases payment receipts submitted by the appellant/assessee show amount lesser than actual amounts paid by the respective patients. On examining all the materials having been collected the AO came to the fact-finding that appellant had understated his professional receipts to the extent of Rs. 9,47,750 and thus he completed the assessment under S. 143(3) on total income of Rs. 13,43,890. The assessee filed appeal before the CIT(A) against such computation of the income which was allowed partly. The assessee thereafter taken this matter to the learned Tribunal on appeal. The learned Tribunal by order dt. 9th Nov., 2005 directed to allow expenses @ 35 per cent out of the nursing home receipt as against 25 per cent allowed by the CIT(A). Thus the revised total income of the assessee for the year under consideration after giving effect to the order of the Tribunal, stood at Rs. 9,86,070. After having assessed taxable income the AO simultaneously initiated penalty proceeding under S. 271 (1)(c) on account of under-statement of professional income of Rs. 9,47,750 issuing a show-cause notice. The said penalty proceeding was contested by the assessee taking preliminary objection that the AO without having recorded his satisfaction as required under the said section has initiated the proceeding. As such, this proceeding is bad on account of lack of jurisdiction. It was contended that there has been no mala fide on the part of assessee as he actually had to depend upon the accountant who is new comer in the profession and under his guidance and advice he filed returns and accordingly the said income was not mentioned in the return originally filed. The accountant concerned has also sworn in an affidavit before the Notary Public taking upon himself the burden of failure and lapses. The said affidavit was filed before the AO. The AO overruling the question of jurisdiction further discarding the affidavit filed by the said accountant imposed minimum penalty @ 10 per cent on the calculated amount of Rs. 22,884. The appellant preferred appeal against the aforesaid order of penalty imposed by AO to the CIT(A) who dismissed the same and upheld the order of penalty. Subsequently, the appeal before the Tribunal also visited the same fate.
(3.) MR . J.P. Khaitan, learned senior counsel for the appellant submits that before initiating penalty proceeding under the aforesaid section satisfaction of the AO ought to have been recorded and recording satisfaction is a precondition to initiate such proceeding. Neither in the order of assessment nor any order before issuance of notice to show-cause nor even in such notice itself the AO recorded his satisfaction. Hence the impugned order of penalty is bad in law as the AO had no jurisdiction to pass such order without recording his satisfaction. In support of his aforesaid legal submission he drew our attention to the decisions of the Delhi High Court in cases of Diwan Enterprises vs. CIT (2001) 167 CTR (Del) 324 : (2000) 246 ITR 571 (Del), CIT vs. Ram Commercial Enterprises Ltd. (2001) 167 CTR (Del) 321 : (2000) 246 ITR 568 (Del), Subhash Gupta (Individual) vs. Dy. CIT (2003) 78 TTJ (Jp)(TM) 692 : (2003) 85 ITD 167 (Jp) (TM) and Jt. CIT vs. A.M. Ltd. 147 Tax 96.;