2013 (2) TMI 744 - AT - Income Tax

Imposition of penalty u/s 271(1)(c) - Held that -We direct the Assessing Officer to cancel the penalty imposed u/s 271(1)(c) with respect to the additions so made by Assessing Officer which were deleted by CIT(A), and for which substantial question of law has been accepted by Hon ble High Court. Agreeing with the contentions of Mr. Shah, we do not find any merit in the order of Assessing Officer for levying the penalty u/s 271(1)(c) of the Income-tax Act, 1961,

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income-tax Act, 1961.
2. Validity of penalty when the issue is debatable and admitted by the High Court as a substantial question of law.
3. Adequacy of disclosure by the assessee regarding purchases and job work.
4. Recording of satisfaction by the Assessing Officer in the assessment order.
5. Penalty in cases where two views are possible.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):
The appeal was filed by the assessee against the order of the CIT(A) dated 19th July 2011, concerning the assessment year 2004-05, specifically regarding the imposition of penalty under Section 271(1)(c) of the Income-tax Act, 1961. The Assessing Officer had made additions on account of bogus purchases and job work, as well as for delayed payment of P.F. & E.S.I. Although the CIT(A) deleted these additions, the Tribunal later confirmed them. The High Court accepted the substantial question of law, indicating that the additions were debatable.

2. Validity of Penalty When the Issue is Debatable:
The assessee's representative argued that since the CIT(A) allowed the claim and the High Court admitted the appeal, the issue had become debatable, and thus, no penalty should be imposed. Reliance was placed on various judicial pronouncements including the Full Bench decision of the Supreme Court in the case of Santosh Hosiery, which held that a substantial question of law must be debatable. The Tribunal in previous cases, such as Late Mohd. Anwar Khan vs. ITO, had consistently held that no penalty could be imposed when the High Court accepted a substantial question of law, making the issue debatable.

3. Adequacy of Disclosure by the Assessee:
The assessee's representative contended that there was full and adequate disclosure regarding purchases and job work. The purchases and amounts payable to parties were fully disclosed in the profit and loss account and balance sheet, which were audited under Section 44AB of the Act. Details such as names, addresses, bank account details of creditors, and payments made through account payee cheques were furnished to the Assessing Officer. Various documents, including certificates from a Chartered Engineer and sales invoices with sales tax registration numbers, were submitted to substantiate the genuineness of the purchases.

4. Recording of Satisfaction by the Assessing Officer:
It was argued that no satisfaction was recorded in the assessment order by the Assessing Officer, which is a prerequisite for imposing a penalty under Section 271(1)(c). Reliance was placed on the decision of the Indore Bench in the case of Sarita Agarwal, which held that no penalty is leviable if the Assessing Officer has not recorded satisfaction of concealment or inaccurate particulars of income in the assessment order.

5. Penalty in Cases Where Two Views are Possible:
The representative argued that when an appeal is admitted as a substantial question of law, it implies that there are two views possible, and therefore, penalty cannot be levied. This argument was supported by various judicial pronouncements, including decisions from the Madras High Court in the case of Rimmalapudi S. Rao and the Supreme Court in Santosh Hazari v. Purshottam Tiwari. The Tribunal agreed with this contention, noting that when the High Court admits a substantial question of law, it indicates that the issue is debatable, and thus, no penalty should be imposed.

Conclusion:
The Tribunal, after considering the rival submissions and judicial pronouncements, concluded that since the High Court had accepted substantial questions of law, the issues were debatable. Therefore, the penalty imposed under Section 271(1)(c) was not justified. The Tribunal directed the Assessing Officer to cancel the penalty, agreeing with the contentions of the assessee's representative. The appeal of the assessee was allowed, and the order was pronounced in the open court on 12th February 2013.

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