2010 (5) TMI 927 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of penalty u/s 271(1)(c) for concealing particulars of income or furnishing inaccurate particulars.
2. Legality of penalty on protective assessment.

Summary:

Issue 1: Confirmation of Penalty u/s 271(1)(c)
The assessee's appeal challenges the CIT(A)'s order confirming the penalty levied by the Assessing Officer u/s 271(1)(c) of the Income-tax Act, 1961. The penalty of Rs. 11,57,000 was imposed for concealing particulars of income or furnishing inaccurate particulars. The assessee argued that no penalty can be levied on protective assessment and that the CIT(A) failed to consider the case's facts and circumstances.

Issue 2: Legality of Penalty on Protective Assessment
The brief facts reveal that during a search operation u/s 132, incriminating documents were found, leading to the disclosure of undisclosed income. The Assessing Officer made a protective assessment in the assessee's hands and a substantive assessment in the hands of two firms. The CIT(A) directed the Assessing Officer to make the assessment on a substantive basis in the assessee's hands, following the Tribunal's orders in the firms' cases.

The Assessing Officer noted that the income belonged to the firm and made a protective assessment in the assessee's case. The assessee argued that the penalty proceedings initiated during the protective assessment were invalid, as the Assessing Officer was not sure about the income's ownership. The CIT(A) confirmed the penalty, stating that no assurance was given during the search that no penalty would be levied and that the requirements of Explanation 5 to Sec. 271(1)(c) were not met.

The Tribunal found that the Assessing Officer was not sure about the income's ownership and made the protective assessment to protect the revenue. There was no material to prove the existence of circumstances leading to satisfaction for initiating penalty proceedings u/s 271(1)(c). The Tribunal relied on the jurisdictional High Court's decision in the case of Shri Bankim J Shah, which held that "reason to believe" is on a lower pedestal than "satisfaction," required for initiating penalty proceedings.

Conclusion:
The Tribunal concluded that the requisite satisfaction recorded by the Assessing Officer for initiating penalty proceedings was without basis and could not survive. Accordingly, the penalty levied by the Assessing Officer and confirmed by CIT(A) was deleted. The appeal of the assessee was allowed.

Order:
The assessee's appeal is allowed. Order pronounced in Open Court on 07/05/2010.