ORDER
Joginder Singh, J.M.
The assessee has preferred these appeals challenging the order of the learned Commissioner (Appeals) dated 2-9-2003 on the ground that the learned Commissioner (Appeals) erred in law in sustaining the penalty which deserved to be deleted being untenable.
2. The assessee declared an income of Rs. 1,58,950 in its return and the assessment was completed under section 143(1) of the Act on 8-11-2002 on a total income of Rs. 4,56,250. The assessee claimed 100% deduction under section 80-IB of the Act on the profit earned from business of retreading of tyres resulting addition of Rs. 4,56,250. Penalty proceedings under section 271(1)(c) of the Act were initiated by issuance of notice under section 274, read with section 27 1 (1)(c) of the Act. In response to the notice, the assessee preferred written submissions by claiming that deduction was claimed under section 80- 1 A/80-IB in this year and earlier years on the belief that assessee was entitled to 100% deduction on his industrial unit of retreading of tyres by claiming that majority of the High Courts are of the view that retreading of the tyres amounting to manufacturing by placing reliance in the case of Addl. CIT v. Kalsi Tyres (P.) Ltd. (1981) 131 ITR 636. As per the assessing officer in view of the decision in the case of Tamil Nadu State Transport Corpn. Ltd. v. CIT (TC No. 34 (Mad.) of 1980, dated 3-7-1984), the same is disallowed and, thus, penalty under section 271(1)(c) was levied because the retreading of tyres does not amount to manufacturing of new article or a thing. The assessing officer opined that since the assessee has furnished inaccurate particulars of his income, the assessee is liable to penalty and, thus, penalty of Rs. 2 lakhs and Rs. 60,000 respectively was imposed. The assessee carried the assessment order in appeal before the first appellate authority. Now the assessee is in further appeal before the Tribunal.
3. During arguments we have heard Shri D.K. Gupta and Shri Tej Mohan Singh, learned advocates for the assessee and Shri Harinder Kumar, learned Sr. DR for the revenue.
4. The gist of arguments on behalf of the assessee is that assessee himself withdrawn the deduction, no satisfaction recorded during the assessment proceedings, it is a debatable issue specially when there is a contrary decision and it is the assessee who informed the assessing officer about the decision of the Hon’ble Apex Court, no penalty can be levied. On the other hand, the learned Sr. DR supported the orders of the authorities below. it was also contended that the issue of recording of satisfaction was not raised earlier, nor any application has been preferred, no permission has been sought from the Tribunal, so, it was argued that assessee could not be allowed to raise this issue for the first time to which the learned counsel replied upon the decision in the case of CIT v. Vegetable Products Ltd . (1973) 88 ITR 192 (SC) by contending that it is a legal issue and can be raised at any level. We have considered the rival submissions.
5. On perusal of record and after hearing the rival contentions it is seen that the asscssee is dealing in retreading of tyres and claimed 100% deduction under section 80-IB of the Act on the profit earned from business of retreading which was disallowed by the assessing officer. The claim of the assessee before the authorities below and also before us is that majority of High Courts were of the view that retreading of tyres amounting to manufacturing and placed reliance on the decision in the case of Kalsi Tyres (P) Ltd. (supra). During assessment proceedings, the assessee admitted that deduction claimed is not allowable in view of the decision of the Hon’ble Supreme Court in the case of Tamil Nadu State Transport Corpn. v. CIT (2001) 252 ITR 883 (SC). This fact has been mentioned in the penalty order and also during arguments before the first appellate authority. Major contention of the assessee is that when the assessee came to know about the decision of the Hon’ble Apex Court that retreading did not amount to manufacturing he himself went to the assessing officer and told that the issue has been put to rest by the Hon’ble Supreme Court and he conceded the point before the assessing officer.
On the other hand, learned DR pointed out that similar deduction was disallowed for the earlier years also. In these circumstances, we are suppose to see whether there is a concealment of particulars on behalf of the assessee or the assessee has furnished inaccurate particulars. Another point is oozing out that assessee claimed deduction in earlier years and revised the return for those years. Whether the assessee deliberately claimed the deduction?
6. There is no dispute to the fact that there are contrary decisions on the issue like that of the Kalsi Tyres (P.) Ltd’s case (supra) pronounced by the Hon’ble High Court of Delhi wherein it was held that the assessee employed certain industrial processes to worn out tyres and gave it a new lease of life. It was held that for all practical purposes and in the commercial sense of the term, the retreaded tyres are almost new articles, separately sold in the market in the same way as newly manufactured tyres, therefore, the assessee is entitled was concessional rate of tax as applicable to an industrial company. While coming to this conclusion the Hon’ble Delhi High Court followed the decision pronounced in the cases of Om Parkas Gupta v. CCT (1965) 16 STC 935 (Cal.) and Mahabir Prasad Birhiwala v. State of West Bengal (1973) 31 STC 628 (Cal.) and distinguished the decision of the Kerala High Court pronounced in the case of CIT v. Casino (P) Ltd. (1973) 91 ITR 289 (Ker). From these decisions of the Hon’ble High Court, one undisputed fact is coming out that there were contrary decisions available with the assessee. Even if it is presumed that the assessee knowingly wanted to take the shelter of these decisions, in our humble opinion, there is no concealment as such. For this preposition, we are fortified by the decision of the Hon’ble Apex Court pronounced in the case of Vegetable Products Ltd. (supra) wherein it was held that when two views are possible, the view which favour the assessee more particularly so where the provision relates to imposition of penalty should be approved.
7. In the present case even if we admit that the assessee claimed the deduction in earlier years and revised the return of those years, still matter was in the knowledge of the department/assessee. In this situation it cannot be said that the assessee concealed something or filed inaccurate particulars, rather the assessee tried to claim deduction under the shelter of contrary decision. Another point is coming out that when the assessee came to know about the decision of the Hon’ble Apex court as pronounced in the case of Tamil Nadu State Transport Corpn. Ltd. (supra), he himself went to the assessing officer to inform that the assessee is not entitled for deduction. This fact has been mentioned in the penalty order as well as during proceedings before the first appellate authority. The Hon’ble Apex Court in the case of Tamil Nadu State Transport Corpn. (P.) Ltd. (supra) on the issue of special deduction held that Tyres retreading does not amount to production and, thus, not entitled to deduction. The Hon’ble Apex Court while coming to this decision uphold the decision pronounced by the High Court of Madras in the case of CIT v. Madurai Pandian Engg. Corpn. Ltd. (1999) 239 ITR 375 (Mad). Another issue raised by the learned counsel for the assessee was that no satisfaction was recorded during assessment proceedings by the learned assessing officer. On perusal of assessment order, it is seen that the assessing officer in the last line of the order under section 143(3) has mentioned “issue notice under section 271 (1)(c) of the Income Tax Act, 1961 as discussed above.” Now we suppose to see the discussion which is available at page 3 of the assessment order which is reproduced as under :-
“Vide the letter dated 4-7-2002, the counsel for the assessee has submitted that the penalty notices may kindly not be issued in view of the fact. that the matter was debatable and disputed and a majority of the High Courts were in their favour and we were under a bona fide belief that there was an industrial unit qualified for 100% exemption. The above submission made by the assessee is not acceptable as the assessee has not disclosed this income knowingly and has disclosed the same when the case had been taken under scrutiny and the assessee was sure that the said deduction is not allowable to him. Therefore, the penalty proceedings under section 271 (1)(c) of the Income Tax Act were being initiated for concealment of income by way of claiming excess deduction.”
If the above para is analysed, we have not found any concealment or furnishing of inaccurate particulars because it is satisfaction of the Income Tax Officer in the course of assessment proceedings regarding the concealment of income, which constitute the basis and foundation of the proceedings for levy of penalty. What is contemplated by section 271 (1) is that the Income Tax Officer should have been satisfied in the course of assessment proceedings regarding matters mentioned in the clause of that sub-section. Though it is not essential that the notice to the persons proceeded against should have also been issued during the course of assessment proceedings. Satisfaction, in the very nature of things precedes the issue of notice and it could not be correct to equate the satisfaction of the Income Tax Officer with the actual issue of notice.
8. A bare reading of the provisions of section 271 and the law laid down by the Hon’ble Supreme Court makes it clear that it is the assessing authority 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. For this preposition we are getting support for the following judicial pronouncements :-
CIT v. Ram Commercial Enterprises Ltd. (2000) 246 ITR 568 (Delhi)
CWT v. Prem Nath Motors (P.) Ltd. (1999) 238 ITR 414 (Delhi)
CIT v. Munish Iron Store (2003) 263 ITR 484 (Punj. & Har.)
D.M. Manasvi v. CIT ( 1972) 86 ITR 557 (SC)
CIT v. Super Metal Re-rollers (2003) 265 ITR 82 (Delhi).
9. Another point is also borne out from the facts at least during assessment proceedings that the issue was purely debatable specially before when it was put to rest by the Hon’ble Apex Court.
10. If the present facts are analysed with a different angle by presuming that suppose in a giving situation the assessee initially filed return with meagre income and later on files a revised return showing higher income to purchase peace and to avoid litigation and if the penalty proceedings under section 271 are initiated and the department claims that there is a concealment of income in that situation also, it can be said that there is a voluntary surrender by the assessce, no penalty can be imposed because in that situation also the assessee has not declared higher income at the instance of the revenue rather he/she has preferred of its own. In the present case also, the assessee either took the shelter of contrary decision or himself informed the assessing officer, so, no penalty can be imposed. For this preposition we are fortified by the following judicial pronouncements
CIT v. Suresh Chandra Mittal(2001) 251 ITR 9 (SC)
CIT v. Suresh Chandra Mittal(2000) 241 ITR 124(MP) which was affirmed by the Hon’ble Supreme Court in the above-mentioned decision.
CIT v. Harshvardhan Chemicals & Mineral Ltd. (2003) 259 ITR 212 (Raj.).
11. The word concealment’ inherently carries with it element of mens rea. Mere omission from the return of an item of receipt amounts neither to concealment nor the deliberate furnishing of inaccurate particulars of income, unless and until there is some evidence to show or circumstances are found from with it can be gathered that the omission was an attributable to an intention or desire on the part of the assessee to -hide or conceal the income so as to avoid imposition of’ tax thereon. For this preposition, we are fortified by the decision of the Hon’ble Supreme Court in the case of K. C. Builders v. Assit. CIT (2004) 265 ITR 562 (SC). As far as the contention is that this issue of satisfaction has been raised for the first time before the Tribunal, we are of the view that it is as legal issue and it can be raised at any time because under section 254 of the Act, the Appellate Tribunal after giving both the parties to the appeal an opportunity of being heard, can pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is expressed in the widest possible terms as was held by the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC). Reliance put forth by the learned AR like K.P. Madhusudhanan v. CIT(2001) 251 ITR 99, Income Tax Officer v. C.D. Joseph (2004) 266 ITR 609 (Ker.) are distinguishable being on different facts specially in the light of the decision of the Hon’ble Apex Court which we have discussed in the preceding paras.
12. In view of these facts, the penalty so imposed deserves to be deleted. The order of the learned Commissioner (Appeals) in both the appeals is reversed. The appeals of the assessee are allowed.