ORDER
1. These two appeals by the assessee are directed against the consolidated order of the CIT dated 22-10-1992 passed under section 263 in relation to the assessment years 1989-90 and 1990-91.
2. On noticing the assessment orders for the two years under consideration, the CIT formed a prima facie opinion to the effect that the said orders were erroneous insofar as they were prejudicial to the interest of the revenue on account of the fact that even though additions on account of concealed income had been made, yet no directions for the initiation of penalty proceedings under section 271(1)(c) had been made in the assessment orders. He, accordingly, initiated proceedings under section 263, and, after having heard the assessee, passed the impugned order with the directions in the following terms :
“The Assessing Officer should, therefore, make fresh assessment in accordance with law. He is free to initiate concealment penalty proceedings, if he is satisfied that such proceedings are attracted.”
Aggrieved, the assessee has come up in appeals before the Tribunal.
3. It was submitted by the learned counsel for the assessee that he concedes the issue of concealment of income on merits. He does not dispute that there was concealment of income. He, however, assailed the impugned order on two grounds; firstly, that an assessment order cannot be held to be erroneous merely on the ground that no direction for initiation of penalty proceedings for concealment has been made. This is more particularly so if the assessment is otherwise in accordance with law. The second contention was that in the present case, the assessee had agreed to the quantum additions specifically on the condition that no penalty proceedings shall be initiated. The department agreed to the request of the assessee and made the additions only on that basis. The department is now estopped from initiating penalty proceedings for concealment. In this connection, support was sought from the following decisions :
(1) Addl. CIT v. J.K. D’Costa [1982] 133 ITR 7/9 Taxman 88 (Delhi),
(2) Addl. CIT v. Achal Kumar Jain [1983] 142 ITR 606/[1982] 11 Taxman 228 (Delhi),
(3) P.C. Puri v. CIT [1985] 151 ITR 584/[1984] 18 Taxman 158 (Delhi),
(4) Addl. CIT v. Precision Metal Works [1985] 156 ITR 693/[1984] 19 Taxman 584 (Delhi),
(5) CIT v. Keshrimal Parasmal [1986] 157 ITR 484/27 Taxman 447 (Raj.),
(6) Surendra Prasad Singh v. CIT [1988] 173 ITR 510/40 Taxman 346 (Gauhati),
(7) CIT v. Linotype & Machinery Ltd. [1991] 192 ITR 337 (Cal.).
4. As against above, it was contended by the learned departmental representative that in a case where penalty proceedings for concealment are justified, the absence of directions to that effect renders the assessment order erroneous. The CIT in this case was, therefore, justified in initiating proceedings under section 63 and passing directions of the nature as in the present case. His next contention was that merely because the addition was made on agreed basis, the department is not precluded or estopped from initiating the penalty proceedings. In this connection, reference was made to the following decisions :
(1) Addl. CIT v. Indian Pharmaceuticals [1980] 123 ITR 874 (MP),
(2) Addl. CIT v. Nathoolal Balaram [1980] 125 ITR 596/3 Taxman 370 (MP) and
(3) Addl. CIT v. Kantilal Jain [1980] 125 ITR 373/[1981] 5 Taxman 92 (MP).
5. We have considered the facts and circumstances of the case and find that the impugned order of the CIT was clearly mis-conceived and could not have validly been passed. So far as the merits of the case is concerned, the learned counsel for the assessee, at the very outset, conceded that the concealment of the income was in fact there and the assessee had agreed to the additions in the two years in the assessment proceedings itself. He, however, contended that the additions were agreed to subject to certain conditions. The Assessing Officer made the additions merely on the basis of the agreement of the assessee without making any independent enquiry/investigation and recording the findings of such enquiry/investigation. Thus, the additions were not based on any finding of the Assessing Officer, but only on the basis of the agreement filed by the assessee. But then, that agreement was subject to the conditions specified in the assessee’s letter. The Assessing Officer made the additions only on the basis of that letter dated 12-2-1991 and he neither made any enquiry nor investigation nor recorded any finding. As such, the condition specified in the letter dated 12-2-1991 was binding on the department and precluded the department from initiating any penalty proceedings. As such, there was no warrant for the CIT for holding that the assessment order was erroneous. The learned counsel further contended that for the initiation of proceedings under section 271(1)(c), it is necessary that the Assessing Officer should be satisfied that the assessee had concealed the particulars of his income or furnished inaccurate particulars of his income. Until such satisfaction is recorded, no penalty proceedings for concealment can be initiated. In the present case, no such satisfaction has been recorded, and, therefore, it was not legally proper for the CIT to record his own satisfaction and direct the Assessing Officer to initiate the penalty proceedings on the basis of that satisfaction. The next contention of the learned counsel was that where no direction for initiation of penalty proceedings for concealment is made in the assessment order, it is not legally possible to initiate the penalty proceedings or direct initiation of penalty proceedings.
6. I have given our careful thought to all the aspects of the matter and find no hesitation in coming to the conclusion that these appeals by the assessee are entitled to succeed. Firstly, this was not a case where additions were made after enquiry/investigation and on the basis of a finding recorded by the Assessing Officer. It is clear from the assessment order that the Assessing Officer accepted the additions for the two years agreed to by the assessee. He made the additions only on the basis of such agreement without making any enquiry or investigation. Therefore, the additions by the very nature of the things could have been made only subject to the conditions specified by the assessee in its letter dated 12-2-1991 which reads as under :
“From : M/s. Variety Cloth Stores,
Jalgaon
Date : 12-2-1991
To,
The Income-tax Officer,
Ward 2(4)
Jalgaon
Dear Sir,
Ref : Your letter dated 11-2-1991 for Income-tax asst. assessment year 1987-88 to 1990-91 reference –
Please refer to your above letter. In the course of proceedings under section 133A, certain receipts were noticed for which we are called upon to state explanation thereon.
(a) A handloan receipt of Rs. 10,000 (date 1-4-1988) as signed by Shri Govind Premchand Advani, was noticed. Similarly another handloan receipt of Rs. 10,000 (date 3-9-1988) was also traced at that time.
(b) Third receipt of Rs. 39,000 dated 13-9-1990, as signed Nandlal Galani.
We state on the above transactions that our partners and relatives have extensive agriculture income in respect of their agriculture holding from which amounts are lying with us. The transaction now questioned might be pertaining to such source. However, they are not related to our firm nor to partners individually.
Despite the above factual position, we submit that just to buy peace and close the disputed matter, we agree to the additions on the following conditions :
(a) Rs. 20,000 (Rs. 10,000 of 1-4-1988 and Rs. 10,000 of 3-9-1988) be added in the total income for assessment year 1989-90.
(b) Rs. 19,000 (Rs. 39,000 of 13-2-1990, minus Rs. 20,000 of proceeding clause (a) be added in the total income for assessment year 1990-91.
(c) That there will not be any penalty under section 271(1)(c) or prosecution whatsoever, on above additions for assessment years 1989-90 and 1990-91.
Kindly note.
Yours faithfully,
Sd/-”
7. It would be clear from the above that the assessee had agreed to the additions subject to certain conditions one of which was that no penalty proceedings under section 271(1)(c) prosecution shall be launched. At that stage, it was open to the Assessing Officer to have not acted upon this letter, and, instead, made independent enquiry/investigation and recorded an independent finding to the effect that there was concealment of income and/or furnishing of inaccurate particulars by the assessee. It was legally optional for the Assessing Officer, at that stage of proceedings, either to make additions on agreed basis or to launch enquiry/investigation. Once he has made the additions on agreed basis, it was not open to him to direct initiation of penalty proceedings under section 271(1)(c). The department was clearly estopped from doing so. In the case of the nature as the present one, it was not open to the department to accept one part of the agreement and reject other part of the same agreement. There is a clear estoppel from doing so. In these circumstances, the Assessing Officer was justified in not passing direction for initiation of the penalty proceedings under section 271(1)(c). Such assessment order, therefore, cannot be held to be erroneous. Moreover, the assessment orders have been passed in accordance with law. Where an order which is in accordance with law such order cannot be revised under section 263. There is also preponderance of the judicial opinion in favour of the view that where direction of initiation of the penalty proceedings has not been passed in the assessment order, initiation of such proceedings subsequently is legally barred. As regards the three court decisions cited by the learned departmental representative, I find that they hardly offer any assistance to the revenue in the case before us. In the Madhya Pradesh High Court decision in Indian Pharmaceuticals’ case (supra), there was failure on the part of the ITO to take notice of the facts attracting provisions relating to penalty. In the present case, there was no such failure on the part of the Assessing Officer. Rather, he, in the exercise of his quasi-judicial discretion, opted to make additions on agreed basis. He could have done so only subject to the conditions which formed integral and inseparable part of the agreement. As such, the assessment orders did not suffer from any such error as to be revisable by an order passed under section 263. The same circumstances render the other two decisions inapplicable in view of the peculiar circumstances of the present case.
8. In view of the above discussion, I hold that there was no error in the two assessment orders so as to justify the initiation of the proceedings and passing of a revisional order under section 263 by the CIT. The impugned order is thus not sustainable and is hereby quashed.
9. The appeals are allowed.