ORDER
Per Shri Vimal Gandhi, J. M. – The appeal by the revenue for assessment year 1979-80 is directed against order of the AAC cancelling penalty imposed on the assessee under section 271(1) (c) of the Income-tax Act, 1961 (the Act). The assessee has filed cross objection in support of the order of the AAC. The assessee filed his return of income for assessment year 1979-80 on 27-6-1979 declaring an income of Rs. 41,550. The department in a search operation carried on office as well as residential premises of the assessee on 19-8-1981 seized certain books of accounts and documents. The ITO asked the assessee to explain certain descrepancies found in the regular books of account and documents seized in the search. Before the ITO Shri A. P. Methani, authorised representative of the assessee stated that he was unable to explain the discrepancies without the help of proprietor who was away to Bombay. The ITO made an addition of Rs. 29,851 with the following remark :
“Add : Total of sundry debtors has been shown less than that as per seized book by 19,278 and the total of sundry creditors has been increased by Rs. 10,573 over the amount as per seized books and hence these are added as suppressed income of the business.”
2. The ITO also initiated proceedings u/s 271(1) (c) of the Act and asked the assessee to show cause why penalty under the above provisions should not be imposed. The assessee in the written reply stated “that the addition made by you are all on estimate. I had not concealed any particulars of income. No penalty is imposable for the additions made on estimate”. The ITO was not satisfied with the above explanation. He referred to the assessment order where a sum of Rs. 29,851 was added and held that the assessee was not able to explain the discrepancies ever in appeal. He further observed that since the assessment year 1975-76 the assessee was being assessed u/s 143(1) so he deliberately concealed particulars of his income this year inflating creditors and deflating sundry debtors with expectation that assessment would be completed u/s 143(1) of the Act without going through account books. The ITO held that the assessee tried to conceal particulars of his income. In the concluding portion, which is most relevant, the ITO observed as under :
“I, therefore, impose 100% of the tax sought to be evaded as penalty u/s 271(1) (c) which comes to Rs. – Issue D. N., challan and order.”
As is evident from the above, the amount of penalty levied was left blank in the order.
3. The assessee went up in appeal and challenged the above order on certain grounds before the AAC. It was contended that the penalty order was bad in law as amount of tax sought to be evaded was not mentioned. The AAC found force in the submission advanced before him and cancelled the penalty imposed with following remarks :
“I have carefully considered the contention of the A/R and I have gone through the penalty order of the ITO. The ITO did not provide the computation of the penalty and even he did not mention the amount of penalty in his order. He conclude the penalty order saving I therefore impose 100% of the tax sought to be evaded as penalty u/s 271(1) (c) which comes to Rs. -. For this infirmity of order, I cancel the penalty imposed by the ITO u/s 271(1) (c) and the appellant will get relief accordingly.”
Hence this appeal by the revenue and cross objection by the assessee.
4. The learned representative of the revenue Shri M. Pal, submitted that non giving of calculation of penalty or penalty amount did not vitiate the penalty order and the same could not be treated as invalid and cancelled. In the order in question, the amount of addition made and that 100% of tax sought to be evaded was being lived as penalty is duly mentioned. The basis finding that the assessee concealed income and deliberately furnished inaccurate particulars of income is also recorded. The valid initiation of proceedings was also not challenged. Simply because amount of penalty levied was not stated, the whole of order cannot be treated as illegal and non est. Non-mention of penalty amount in the order was merely an irregularity and non illegality. At best, the order could be set aside by the AAC with direction to pass a fresh order giving the amount of penalty imposed. The learned departmental representative relied upon the decision of Honble Gauhati High Court in the case of CIT v. Smt. Ratna Kanti Bhuyan [1976] 103 ITR 397 which was subsequently followed in the case of Assam Frontier Veneer & Saw Mills v. CIT [1976] 104 ITR 479 (Gauhati).
5. Shri G. P. Agarwal, learned counsel for the assessee supported the order of the AAC. He submitted that a penalty order in which the amount of penalty levied was not specified was bad in law land no notice of demand could be issued on the basis of such an order. He relied upon decision of Honble Bombay High Court in the case of N. N. Kotak v. CIT [1952] 21 ITR 18 and of Jammu and Kashmir High Court in the case of S. Mubarik Shah Naqshbandi v. CIT [1977] 110 ITR 217.
6. We have carefully considered the rival submissions, facts and circumstances of the case, statutory provisions and case laws referred to before us. It is not in dispute that in the order passed by the Assessing Officer on 6-9-1985 no amount of penalty levied was stated. The question before us is as to what is the effect of non-mention of amount in the order dated 6-9-1985. To determine the above question we must take into account the following provisions which were in force at the relevant time.
Section 271(1) : If the Income-tax Officer or the Appellate Assistant Commissioner [or the Commissioner (Appeals)] in the course of any proceedings under this Act, is satisfied that any person –
(a)** ** ** (b)** ** ** (c) has concealed the particular of his income or furnished inaccurate particulars of such income he may direct that such person shall pay by way of penalty - (i) ** ** ** (ii) ** ** **
(iii) in the cases of 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 twice, 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.
The amount of “tax sought to be evaded” is defined in Explanation (4) to above subsection which is as under :
Explanation 4 : For the purpose of clause (iii) of this sub-section expression “the amount of tax sought to be evaded”, –
(a) in any case where the amount of income in respect of which particulars have been concealed or inaccurate particular have been furnished exceeds the total income assessed, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particular have been furnished had such income been the total income :
(b) in any case to which Explanation 3 applies, means the tax on the total income assessed;
(c) in any other case, means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished.
Section 275 providing limitation of levy of penalty is as under :-
Section 275 : No order imposing a penalty under this Chapter shall be passed –
(a) in a case where the relevant assessment or other order is the subject-matter of an appeal to the Appellate Assistant Commissioner [or the Commissioner (Appeals)] under section 246 or an appeal to the Appellate Tribunal under sub-section (2) of section 253, after the expiration of a period of –
(i) two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed.
or
(ii) six months from the end of month in which the order of the Appellate Assistant Commissioner [or the Commissioner (Appeals)] or, as the case may be, the Appellate Tribunal is received by the Commissioner, whichever period expires later.
(b) in any other case, after the expiration of two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed.
On consideration of section 271 with section 275, little doubt is left that the order imposing a penalty within the limitation prescribed under section 275 is the direction that “such person shall pay by way of penalty” sum specified in addition to any tax payable by him. It follows as a necessary corollary that every penalty order must give a direction to the defaulting assessee to pay the sum specified there in addition to the tax payable. If amount of penalty is not specified there is no direction and no penalty order. It is not doubt true that for assumption of jurisdiction to levy penalty under sub-section (1) (i) (c), the Assessing Officer must record satisfaction to the effect that the assessee concealed income or furnished inaccurate particulars of income in this case the Assessing Officer must record satisfaction to the effect that the assessee concealed income or furnished inaccurate particulars of income and in this case the Assessee concealed income or furnished inaccurate particulars of income and in this case the Assessing Officer satisfied the above requirement and assumption of jurisdiction cannot be questioned. But why assume jurisdiction if no additional sum was to be specified ? The very purpose of assumption of jurisdiction is to direct payment of penalty. If amount of penalty is not specified, the very purpose of initiation of proceedings and assumption of jurisdiction is defeated. The whole exercise become a futile exercise. The initiation of penalty proceedings must culminate indirection to pay a specified amount by way of penalty. Without the specified amount there is not penalty order.
7. We are unable to agree with learned departmental representatives submissions that non-mention of penalty amount will not vitiate the entire order as clause (iii) of section 271(c) (i) is directory and not mandatory and the amount of penalty levied could be separately stated. In our opinion, computation of penalty is as important as initiation of proceedings and is inseparable part of penalty proceedings. In fact, fixation of amount and direction to pay the amount so fixed as penalty is the very purpose of proceedings. The fixation of amount of penalty cannot be treated as secondary or ministerial job. Without specified amount, the penalty order is a waste paper. There is failure to exercise power u/s 271(1) of the Act. It is not an irregularity. No penalty order can be visualized without the amount to be paid by way of penalty. There is thus no question of setting aside the order and directing the Assessing Officer to specify the amount of penalty. For the purpose of clause (iii) of section 271(1) (c) of the Act the ITO has first to determine the amount of “tax sought to be evaded” as per Explanation (4) to sub-section. The so-called order before us does refer to the addition made in the assessment but amount of “tax sought to be evaded” has nowhere been determined. Without the above figure, no valid penalty order could be passed.
8. The revenue placed reliance on two decisions of Gauhati High Court. In the case of Smt. Ratna Kanti Bhayan (supra), the court observed as under :
“The Appellate Tribunal held that the order of the Income-tax Officer levying penalty was illegal for the reasons that the Income-tax Officer has passed the order imposing penalty without indicating the period of delay and the basis for calculating and the Income-tax Officer did not judicially exercise his power for imposing penalty.
Held, (i) that the period of default in filing the return was a matter of simple calculation on the basis of facts manifest from the records. There was a default of 54 months in filing the return;
(ii) the Income-tax Officer, the Appellate Assistant Commissioner and also the Tribunal held that the excuse given for the delay in filing the return was not a reasonable cause as contemplated by section 271(1) (a) of the Income-tax Act, 1961;
(iii) where the basis of the calculation of the penalty has been laid down in the statue itself and, more so, where the quantum has been fixed as in section 271(1) (a) (i), there could be no legal requirement for the Income-tax Officer to indicate what was the basis for his calculation, since a mere reference to the statutory provision and the in controverted facts apparent from the records would make the position abundantly clear.
Therefore, the Income-tax Officers order imposing the penalty could not be assailed on the grounds mentioned in the Tribunals order.”
In our opinion, the above cited decision cannot advanced the case of the revenue. For purpose of section 271(1) (a) (i) it may not be necessary to give basis of calculation of penalty imposed since the penalty has to be calculated as per statutory provisions. But the decision as reported dopes not suggest that penalty order did-not mention the quantum of penalty levied. The authorities cited also do not suggest that there can be penalty order without specifying the amount to be paid by way of penalty.
9. In fact, the decision of Honble Bombay High Court in the case of N. N. Kotak (supra) is squarely applicable. In the said case, Chagla, C. J. observed as under :-
“A notice of demand can only be served under section 29 of the Indian Income-tax Act, 1922, provided tax, penalty or interest is due in consequence of an order passed under the Act. Therefore the condition precedent to the validity of a notice of demand must be an order passed under the Act and the notice is merely consequential upon that order. If there is no order under the Act then no notice can be served under section 29.
The direction that the Income-tax Officer has to give under section 46(1) must be a direction which must take the form of an order and that order must state the specify sum which the assessee has got to pay by way of penalty.
The assessee was assessee to income-tax but as he failed to make the full payment of tax the Income-tax Officer passed an order to the following effect : “Tax not paid. Issue penalty notice. Pursuant to this order a demand was made for payment under section 29 and the notice of demand mentioned what was the amount of penalty that the assessee had to pay. The assessee contended that the penalty imposed was contrary to law inasmuch as no proper order was passed by the Income-tax Officer under section 46(1) :
Held, that as the order passed by the Income-tax Officer under section 46(1) did not specify the amount of penalty, the order was bad and as the notice of demand followed upon an invalid order it was equally bad. Consequently the penalty imposed by the Income-tax Officer was not valid in law.”
This decision squarely applies to the facts of the case. Respectfully following the above decision and for the reasons already stated. We uphold the order of the AAC cancelling the penalty.
10. In the result, the revenues appeal is dismissed and the assessees cross objection is infructuous and is dismissed as such.