2003 (4) TMI 72 - HC - Income Tax

Whether, Tribunal is justified in law in cancelling the penalty of Rs. 4,38,172 levied under section 271(1)(c), holding that the penalty imposed was not valid and jurisdiction to impose the same was illegally assumed without recording a proper satisfaction, whereas the Assessing Officer passed a speaking order under section 271(1)(c) establishing that the assessee had wilfully and deliberately concealed the true and correct particulars of its income, a reference to which was duly made in the assessment order by way of initiating penalty proceedings under section 271(1)(c)? - In our opinion, the reasons assigned by the Tribunal for cancellation of the penalty are legally correct and the order passed by it does not give rise to any question of law, much less a substantial question of law requiring determination by this court under section 260A of the Act.

Summary

Issues:
1. Validity of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Jurisdictional defect in assuming penalty imposition authority.
3. Recording of satisfaction by the Assessing Officer for penalty imposition.

Analysis:

The High Court of PUNJAB AND HARYANA addressed the issue of the validity of a penalty under section 271(1)(c) of the Income-tax Act, 1961. The case involved an assessee who initially disclosed an income of Rs. 74,155 but later revised it to Rs. 9,43,155 during assessment proceedings. The Assistant Commissioner of Income-tax initiated penalty proceedings under section 271(1)(c) based on the revised return. The Commissioner of Income-tax (Appeals) upheld the penalty, but the Income-tax Appellate Tribunal canceled it, citing a jurisdictional defect. The Tribunal noted that the Assessing Officer did not record satisfaction regarding concealment of income or inaccurate particulars, as required by law for penalty imposition.

The Tribunal emphasized that the jurisdiction to impose a penalty is contingent upon recording satisfaction, and any jurisdictional defect cannot be cured. It highlighted that the Assessing Officer did not mention concealment of income in the assessment order, merely accepting the revised return without proper explanation. The Tribunal concluded that the penalty imposition was invalid due to the lack of a recorded satisfaction, leading to the illegal assumption of jurisdiction. Consequently, the Tribunal canceled the penalty based on these grounds.

The High Court affirmed the Tribunal's decision, stating that the reasons provided for canceling the penalty were legally sound. The Court found no question of law, let alone a substantial one, necessitating its intervention under section 260A of the Act. Therefore, the Court dismissed the appeal, upholding the cancellation of the penalty under section 271(1)(c) of the Income-tax Act, 1961.

In conclusion, the judgment underscores the critical requirement of recording satisfaction by the Assessing Officer for imposing penalties under section 271(1)(c) of the Income-tax Act, 1961. Failure to meet this jurisdictional prerequisite renders the penalty imposition invalid and subject to cancellation, as demonstrated in this case.