ORDER
Shri Chander Singh, Accountant Member
1. This appeal by the revenue and the cross objection by the assessee relates to the assessment year 1985-86 and deals with cancellation of penalty under section 271(1)(c) by the CIT(A).
2. The facts briefly stated are that the ship M.V. Ken Lucky owned by Nedlloyd Bulk B.V. Botterdam was represented in India by Patvolk, Vasco. The said ship was hire-chartered to Mineral Import Export, Bucharest for the carriage of around 50000 metric tons of iron ore. The freight charges for such a carriage was fixed at $ 12.00 per metric ton. Patvolk, Division of Gokak Patel Volkart Ltd. vide its letter dated 30th November, 1984 applied to the Income-tax Officer for ‘No objection certificate’. It was brought to the notice of the ITO that the above vessel was expected to arrive at the port of Mormugao on 1st December, 1984 at 1800 hrs. and was expected to sail by 3rd December, 1984 after loading a quantity of about 43200 metric tons of iron ore. The No objection certificate was required by the Patvolk, Division of Gokak Patel Volkart Ltd. for the production to the Assistant Collector of Customs, Mormugao for obtaining the clearance for the said vessel. The No objection certificate, on the request of Patvolk, Division of Gokak Patel Volkart Ltd., was issued by the ITO on 30-11-1984. As per the Guarantee Bond, the agents were responsible for filing the return as required under section 172 of the Income-tax Act and also to pay the tax on the income declared.
3. The said Patvolk, thereafter filed the return of income under section 172(3) of the Income-tax Act. Along with the return of income, the Agents had also filed (1) Charter Party dated 23rd November, 1984, (2) Freight manifest received from South India Corporation Agencies (P.) Ltd., and (3) Photocopy of the Bill of Lading issued to the Minerals & Metals Trading Corporations of India Ltd. It was pointed out to the Assessing Officer that the document, Charter Party was drawn on Standard Form of Iron Ore Charters under the Maritime regulations. It was also pointed out that when a party charters a ship, it becomes a temporary owner during the period of voyage, legally called ‘Disponent Owner’ and the Master of the ship becomes the servant (Agent) of the owners for the time being. The Agents also pointed out to the Assessing Officer that in the present case, Mineral Import Export, Bucharest were the owners of the vessel at the time of carrying the iron ore from India. The said cargo of iron ore also belonged to them. The Agents further pointed out that although the word ‘freight’ occurs in the standard printed form of the Charter Party, it is apparent and clear that what the owner of ship, Nedlloyd Bulk, will get for letting the use of the ship will be and is in fact charter hire. The Agent also pointed out that the document evidencing the charter of the vessel had been executed outside the territory of India and there was no nexus between the earning of the charter hire and the factor of the source of income. The Agent also pleaded that the taxation laws in India did not include charter hire as an item attracting taxability in India.
4. The Assessing Officer’s attention was also drawn to Bill of Lading. It was pointed out that the Bill of Lading was drawn on a printed universal form approved by the Maritime Conference. It was to be issued to the shipper as an evidence of goods received on board a vessel. The shipper has to negotiate this document with the banker to obtain the price for the goods. It was also brought to the notice of the Assessing Officer that this document quoted the name of the consignee as Mineral Import Export, Bucharest who were also the charterers of the vessel. In the light of these facts, the Agents pleaded before the Assessing Officer that they were not liable to pay any tax for the vessel’s voyage.
5. The Assessing Officer did not accept the contentions of the Agents and completed the assessment determining the tax payable at Rs. 4,44,168. It is essential for us to mention that in this assessment order dated 16-8-1985, the Assessing Officer did not initiate penalty proceedings under section 271(1)(c) of the Income-tax Act. The Agents did not file an appeal against this order.
6. The Agents, however, made a petition under section 264 of the Income-tax Act to the Commissioner of Income-tax. It was pleaded before the Commissioner that on the facts of the case, the Agent was not liable to pay any tax in India. The Agent, therefore, requested the Commissioner to give appropriate relief to the Agent. The Commissioner disposed of the petition under section 264 from the Agent vide his order dated 20-12-1985. The Commissioner observed :
“However, as indicated earlier, the fact that at the time of the original assessment, no effort had been made to gather the facts, cannot be ignored. In order that a proper order is passed by the ITO, I will set aside the order under consideration with a direction to the ITO to redo the assessment afresh after taking into consideration all the relevant facts and applying the provisions of law, and after affording the assessee an opportunity of being heard.”
7. The set-aside assessment was completed by the Assessing officer, vide his order dated 20th January, 1986. In the said order, there was no variation to the income disclosed by the Agent in the return filed under section 172(3) or the tax payable determined at Rs. 4,44,168 vide order dated 16-8-1985. The Assessing Officer, however, was of the view that the Agents had misrepresented the facts and had wrongly claimed that to tax was payable by the Agents. He, therefore, issued penalty notice under section 271(1)(c) for concealment of particulars of income. After hearing the Agents, the Assessing Officer, for the reasons mentioned by him in his penalty order, levied the minimum penalty of Rs. 4,44,168.
8. Aggrieved, the Agents preferred appeal before the CIT(A). Various contentions were raised before him which we do not consider it necessary to reproduce. He rejected some of the contentions of the Agents, but cancelled the penalty order of the Assessing Officer. While cancelling the penalty order, the CIT(A) observed :
“This is a matter of difference of opinion. On the part of the appellant, there was no suppression of material facts as the appellant had furnished all the documents required and had also executed the Guarantee Bond in case the tax was payable. There is, therefore, no justifications for the levy of penalty. The penalty levied is cancelled.”
9. The revenue is before us. The learned senior departmental representative Shri Hari Krishan strongly relied on the order of the Assessing Officer. He took us through the said order and pointed out that the assessee had misrepresented the facts and in fact twisted the same to suit his convenience. The income was liable to be taxed in India as per the provision of the Income-tax Act and yet the assessee claimed that they were not liable to pay any tax. The assessee had made false claim and, therefore, was liable to penalty under section 271(1)(c) of the Income-tax Act. In this regard, the learned senior departmental representative has drawn our attention to the decision of the Calcutta High Court in the case of Burmah-Shell Oil Storage & Distributing Co. of India Ltd. v. ITO [1978] 112 ITR 592. He, therefore, prayed that the order of the CIT(A) should be vacated and that of the Assessing Officer restored.
10. On the other hand, the learned counsel representing the assessee supported the decision of the CIT(A). He has taken us through all the documents filed before the Assessing Officer and pointed out that full materials was before the Assessing officer before the completion of the first assessment dated 16-8-1985. The learned counsel took us through Charter Party and other relevant documents to prove that there was no factual or legal misrepresentation by the assessee. He took us through the various clauses of the Charter Party, especially clauses 28, 29, 35, 38 and 42 and pointed out that from these facts, it is absolutely cleat that in fact the assessee was not liable to pay any tax here in India. In any way, there was no misrepresentation by the assessee and, therefore, the observation of the Assessing Officer were factually incorrect.
11. He also pointed out that the tax liability of the assessee was determined by the Assessing Officer at Rs. 4,44,168 vide his order dated 16-8-1985. In that order, the Assessing Officer did not give any finding that the assessee was guilty of concealment of income. As a matter of fact, there was no initiation of penalty proceedings in the said order. The assessee filed a petition under section 264 to the Commissioner after the said order of the Assessing Officer. As the Commissioner set aside the order of the Assessing Officer and directed the Assessing Officer to reframe the assessment afresh, the decision to initiate penalty proceedings was taken by the Assessing Officer in his order under section 172(4) read with section 264 of the Income-tax Act. The learned counsel pleaded that initiation of penalty proceedings in the second order was not justified on the facts of the case. He also pointed out that as a result of 264 order, the assessee is worst off.
12. On merit, the learned counsel pleaded that the facts of the case suggest that the assessee has neither suppressed facts nor concealed particulars of income. The assessee had disclosed full facts in the return of income and has only made a claim that on the facts and in the circumstances of the case the tax payable was nil. While filing return of income under section 172(3), the assessee neither suppressed the income part nor the facts part and therefore, no penalty under section 271(1)(c) could be initiated or levied. While filing the return, the assessee had merely claimed that they were not liable to pay any tax. That explanation of the assessee has been rejected by the Assessing Officer. He urged that in proceedings for levy of penalty the onus is no the revenue to establish that the assessee was guilty of concealing the particulars of his income. Merely because the explanation putforth by the assessee has been rejected, it would not follow that penalty is exigible. He also argued that the Assessing Officer has not proved that the assessee has concealed the income. Conceal means and implies something more than mere failure to disclose a thing or a fact. It refers to some advantage to the concealing party or disadvantage to some interested party and secrecy is an essential ingredient of the act of concealment. To constitute concealment, it must appear that the statement or acts of the person was collected and designed to prevent discovery of the act, i.e., that the act was misleading, false and suspective. There was no materials before the Assessing Officer to come to such a conclusion and held that the assessee was guilty of concealment. For this proposition and various other propositions, the assessee has relied on the following decisions :
(1) Sunder Lal Mohinder Pal v. CIT[1982] 135 ITR 80/[1981] 5 Taxman 314 (Punj. & Har.),
(2) IAC v. Smt. Rajkumari Mahajan [1992] 40 ITD 337 (Chd.),
(3) Himat Vallanji Karia v. ITO[1991] 36 ITD 76 (Ahd.),
(4) Yasmin Properties (P.) Ltd. v. Asstt. CIT[1993] 46 ITD 331 (Bom.),
(5) Nuchem Ltd. v. Dy. CIT[1993] 47 ITD 487 (Delhi),
(6) Ion Exchange (I) Ltd. v. Dy. CIT [IT Appeal No. 4773 (Bom.) of 1989],
(7) CIT v. P.M. Shah [1993] 203 ITR 792 (Bom.),
(8) CIT v. Dharamchand L. Shah [1993] 204 ITR 462/70 Taxman 414 (Bom.),
(9) Burmah-Shell Oil Storage & Distributing Co. of India Ltd.’s case (supra),
(10) Associated Cement Companies Ltd. v. Dy. CIT [1992] 40 ITD 70 (Bom.),
(11) CIT v. Indian Metal & Ferro Alloys Ltd. [1995] 211 ITR 35 (Ori.),
(12) ITO v. Rajyalakshmi Mahal [1994] 48 ITD 248 (Hyd.) (SMC),
(13) Impulse India (P.) Ltd. v. ITO [1992] 40 ITD 36 (Delhi),
(14) Auto Bharti v. ITO [1994] 49 ITD 583 (Nag.),
(15) CIT v. G.D. Naidu [1987] 165 ITR 63/[1986] 24 Taxman 255 (Mad.),
(16) ITO v. Sallitho Ores (P.) Ltd. [IT Appeal No. 246 (Bang.) of 1986].
13. The learned counsel also pleaded that neither the Commissioner in his order under section 264, nor the Assessing Officer properly appreciated the import of the decision of the Supreme Court in the case of Union of India v. Gosalia Shipping (P.) Ltd. [1978] 113 ITR 307. As a matter of fact, the case of the assessee is fully covered by the aforesaid decision.
14. The learned counsel delt at length on the issue that the Assessing Officer had initiated the penalty proceedings for concealment. The Assessing Officer, however, levied the penalty under section 271(1)(c) for filing the inaccurate particulars. If the initiation is for concealment, the penalty could not be levied for filing inaccurate particulars. In this regard, the learned counsel has drawn our attention to :
(1) CIT v. Lakhdhir Lalji [1972] 85 ITR 77 (Guj.),
(2) P.M. Shah’s case (supra)
(3) Dharamchand L. Shah’s case (supra).
The learned counsel, therefore, supported the decision of the CIT(A).
15. We have heard the rival submissions and have considered the facts of the case and judicial decisions brought to our notice. It is well-settled that imposition of penalty is purely discretionary. The penalty will not be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. In other words, power to impose penalty had to be exercised judicially with due regard to all the facts and circumstances of each case and cannot be exercised mechanically. In the case before us, the tax liability of the assessee was determined by the Assessing Officer, vide his order dated 16-8-1985. In the said order, there was no finding that the assessee has either concealed income or furnished inaccurate particulars thereof. There was also no finding that the assessee has misrepresented the facts or twisted the facts to suit his purposes. In the said order, the Assessing Officer merely rejected the claim of the assessee that he was not liable to pay any tax and, instead, determined the tax liability at Rs. 4,44,168 which the assessee has paid. In the said order, therefore, the Assessing Officer, as it appears, was satisfied that in the case of the assessee provision of section 271(1)(c) were not attracted.
16. For the misfortune of the assessee, a 264 petition was filed by him to seek the relief. The assessee pleaded before the Commissioner that the assessee was not liable to pay any tax and, therefore, filling the nil return was justified. The Commissioner, instead of deciding the issue in favour of the assessee, neither rejected his petition, nor gave him any relief; instead he set aside the order back to the Assessing Officer. In this connection, we are required to examine the powers of the Commissioner under section 264 of the Income-tax Act. The provisions of section 264(1) are extracted below :
“In the case of any order other than an order to which section 263 applies passed by an authority subordinate to him, the Commissioner may, either of his own motion or on an application by the assessee for revision, call for the record of any proceedings under this Act in which any such order has been passed and may make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may pass such order thereon, not being an order prejudicial to the assessee, as he thinks fit.”
From the above, it is apparent that the proceedings under section 264 is thought of by the Legislature only to meet the situation faced by an aggrieved assessee who is unable to approach the appellate authorities for relief and has no other alternative remedy under the Act. This revisional power by the Commissioner could be used suo motu or as a request of an assessee. As this procedure in revision essentially involves the adjudication of rights and liabilities of the parties, it is undoubtedly a quasi-judicial proceedings in the disposal of which the statutory authority ultimately vests or divests rights of citizens, it should not lightly use their discretion and refuse to interfere on ground which are neither reasonable nor proper. As a matter of fact, a public duty is imposed on the revisional authority not only to entertain such application, but to deal with the same in accordance with law after giving the aggrieved party a reasonable opportunity of being heard. The revisional jurisdiction conferred under section 264(1) on the Commissioner is subject to the provisions of the Act. He has a discretion to grant or refuse a relief. His discretion is not arbitrary, vague and fanciful. He has got the power to pass such order in revision as he may deem fit. However, the power is not arbitrary one to be exercised according to his fancy. It must be exercised on an objective consideration of the fact and circumstances of the case, that is, according to law and not according to humour. Though the revisional powers under section 264 of the Income-tax Act are very wide, but these powers are subject to the limitations prescribed in the said section. Under section 264, the Commissioner is empowered to pass such orders as he thinks fit, but the order passed by him should not be prejudicial to the assessee. An order made by the Commissioner can be said to be prejudicial to the assessee when he is, as a result of it, in a different and worse position than that in which he was placed by the order under revision. In the case before us, the Assessing Officer did not initiate penalty proceedings under section 271(1)(c) of the Income-tax Act. Such proceedings were initiated only as result of reassessment after the CIT had set aside the first order of the Assessing Officer. Therefore, indirectly the 264 order of the Commissioner has resulted in the levy of penalty under section 271(1)(c) of the Act and as such is prejudicial to the interest of the assessee. No order under section 264 prejudicial to the assessee can be passed. In this regard, we are supported by the ratio of the decisions in the cases of CIT v. Tribune Trust [1948] 16 ITR 214 (PC), Senairam Dungarmall v. Assam Board of Agrl. IT [1951] 20 ITR 480 (Assam), Parvathi Sankaran v. CIT [1960] 40 ITR 586 (Ker.), N.S. Kantan v. Agrl. ITO [1965] 58 ITR 53 (Mad.), K.C. Luckose v. ITO [1976] 105 ITR 418 (Ker.).
17. The scope of the revisional power under section 264 has been discussed above. The Commissioner, while disposing of the petition of the assessee, must be aware of his powers and the scope of the said section. He also must be aware that he cannot pass any order against the interest of the assessee. When he set aside the first order of the Assessment officer, he must have done it with a view to find out whether the assessee was entitled to some relief. Therefore, the scope of the Assessing Officer was limited by the Commissioner to find out whether the assessee was entitled to some relief on the facts. The Assessing Officer was not given any power by the Commissioner to pass an order prejudicial to the interest of the assessee. The Commissioner also did not direct the Assessing Officer to initiate the penalty proceedings under section 271(1)(c) of the Income-tax Act. Perhaps, this was never the intention of the Commissioner when the set aside the order of the Assessing Officer. In our view, therefore, the Assessing Officer had gone beyond his powers and was, therefore, not justified in initiating penalty proceedings while passing the assessment order in pursuance to the directions under section 264 of the Act. Moreover, in the reassessment proceedings, the Assessing Officer did not find any concealment on the part of the assessee. The assessee had fully disclosed all the materials facts at the time of original assessment. The request of the assessee that he was not liable to pay any tax was rejected at the time of the first assessment and same action has been taken by the Assessing Officer while framing the second assessment. No new facts have been discovered by the Assessing Officer while completing the assessment afresh in pursuant to the directions by the Commissioner. On these facts, therefore, initiation of penalty proceedings was not at all warranted on the facts of the case. In our view, therefore, the Commissioner (Appeals) was justified, though for different reasons, to cancel the penalty.
18. In this appeal, various other issues have also been raised by the learned counsel of the assessee such as that the penalty was initiated for concealment of income, but levied for filing inaccurate particulars thereof. Since we have upheld the order of the CIT(A), these issues are not necessary to be considered.
19. With the result, revenue’s appeal dismissed.
20. Coming to the cross objection by the assessee, the same becomes infructuous as we have cancelled the penalty under section 271(1)(c) of the Income-tax Act. The cross objection is, therefore, dismissed as infructuous.