2005 (5) TMI 48 - HC - Income Tax

Penalty proceedings - order passed by the AO, shows that there is no application of mind and no opinion has been formed and no satisfaction has been recorded by the Assessing Officer before or at the time of initiating penalty proceedings. In fact, in the impugned order it is recorded that penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of the income had been initiated separately. This itself shows that without even mentioning the essential ingredients which the Assessing Officer is obliged to record for initiation of penalty proceedings, the impugned order was passed to pass an order initiating penalty proceedings while passing the assessment order in a routine manner would be an apparent violation of the relevant provisions - impugned order clearly suffers from the infirmity of non-application of mind penalty not leviable

Summary

Issues:
Assessment of penalty under section 271(1)(c) of the Income-tax Act for furnishing inaccurate particulars of income without proper satisfaction recorded by the Assessing Officer.

Analysis:
The assessee declared a loss for the assessment year 2001-02, which led to scrutiny under section 143(2)(i) of the Income-tax Act. The Assessing Officer noted that the assessee made provisions for PF, pension fund, ESIC, and bonus but did not make the payments or add them back in income as per section 43B. Consequently, penalty proceedings under section 271(1)(c) were initiated. The first appellate authority considered the issue and referred to the decision in the case of CIT v. Ram Commercial Enterprises Ltd., highlighting that penalty on debatable additions should not be levied without proper satisfaction. Therefore, the penalty was deleted.

The Income-tax Officer challenged the appellate authority's decision before the Income-tax Appellate Tribunal, which upheld the deletion of penalty. The Tribunal emphasized that the Assessing Officer did not record proper satisfaction as required under section 271(1)(c). The Department contended that detailed reasons were not necessary for initiating penalty proceedings, but the court disagreed. Referring to previous judgments, including CIT v. Ram Commercial Enterprises Ltd. and CIT v. B.R. Sharma, the court reiterated that the Assessing Officer must form an opinion and record satisfaction before initiating penalty proceedings.

The court observed that the Assessing Officer's order lacked application of mind and did not demonstrate the formation of an opinion or satisfaction before initiating penalty proceedings. The order merely stated that penalty proceedings were initiated separately, indicating a lack of essential ingredients required for penalty initiation. Consequently, the court found the order to be flawed due to non-application of mind and failure to comply with legal principles.

In conclusion, the court dismissed the appeal, affirming the decisions of the appellate authority and the Tribunal. It held that no substantial question of law was raised, and the parties were directed to bear their own costs. The judgment emphasized the importance of the Assessing Officer recording proper satisfaction before initiating penalty proceedings under section 271(1)(c) of the Income-tax Act.