2016 (1) TMI 1357 - AT - Income Tax

Penalty u/s. 271(1)(c) - income disclosed in the returns filed u/s. 139(1) and the income assessed u/s. 153A of the Act - no satisfaction for initiation of penalty proceedings - Held that - In the present case also satisfaction for initiation of penalty proceedings u/s. 271(1)(c) is not discernible from the order of assessment. The show cause notice u/s. 274 is also defective. We hold that the penalty imposed on the Assessee u/s. 271(1)(c) of the Act cannot be sustained and the same is directed to be cancelled. Assessee also advanced arguments on the availability of immunity to the Assessee under Explanation 5 to Sec. 271(1)(c). We are not dealing with those contentions as the penalty is being deleted on the basis of the other arguments referred to above. - Decided in favour of assessee.

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the satisfaction recorded by the Assessing Officer (AO) for initiating penalty proceedings.
3. Validity of the show-cause notice issued under Section 274 of the Act.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The Assessee challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)] confirming the penalty imposed by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was imposed following search and seizure operations conducted under Section 132(1) of the Act. The AO held that the Assessee would not have declared the income in question but for the search operation, and thus imposed penalties for concealment of income and furnishing inaccurate particulars of income.

2. Validity of the Satisfaction Recorded by the AO for Initiating Penalty Proceedings:
The Assessee argued that the AO did not record the requisite satisfaction in the assessment order for initiating penalty proceedings, merely stating "Penalty proceeding u/s. 271(1)(c) initiated." The Tribunal referred to the decision of the Hon'ble Karnataka High Court in CIT v. MWP Ltd., which held that mere mention of initiating penalty proceedings does not amount to a direction for levy of penalty. The Tribunal also cited the decision of the Hon'ble Delhi High Court in Ms. Madhushree Gupta v. Union of India, which emphasized that the AO must arrive at a prima facie satisfaction during the assessment proceedings regarding concealment or furnishing of inaccurate particulars before initiating penalty proceedings. The Tribunal concluded that the AO's order did not reflect such satisfaction, rendering the initiation of penalty proceedings improper.

3. Validity of the Show-Cause Notice Issued under Section 274 of the Act:
The Assessee contended that the show-cause notice issued under Section 274 did not specify whether the penalty was for "furnishing inaccurate particulars of income" or "concealing particulars of such income," as the irrelevant portion was not struck off. The Tribunal referred to the decision of the Hon'ble Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory, which held that the show-cause notice must specifically state the grounds for penalty, and a vague notice would offend principles of natural justice. The Tribunal found the show-cause notice in the present case defective for not specifying the exact charge, thus invalidating the penalty imposed.

Conclusion:
The Tribunal held that:
1. The satisfaction for initiating penalty proceedings was not discernible from the assessment order.
2. The show-cause notice under Section 274 was defective for not specifying the grounds for penalty.
3. The orders imposing penalty were invalid and the penalties were consequently canceled.

The appeals were allowed, and the penalties imposed under Section 271(1)(c) were directed to be canceled. The Tribunal did not address the Assessee's argument regarding immunity under Explanation 5 to Section 271(1)(c) as the penalties were deleted on other grounds. The order was pronounced on 20.01.2016.

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