2013 (4) TMI 423 - HC - Income Tax

Penalty u/s 271(1)(c) on furnishing inaccurate particulars with regard to income - Also penalty u/s 271A for non-maintenance of books of accounts - Charge interest u/s 234A & 234B - Held that - In view of the insertion of Sub-Section (1B) inserted in Section 271 w.e.f. 1st April, 1989, having regard to the fact that the Assessing Officer added income and disallowed expenditure and depreciation and, at the same time, observed as regards initiation of penalty proceedings under Clause (c) of Sub-Section (1) the said assessment order, by a fiction of law, is deemed to constitute satisfaction of the Assessing Officer for initiation of penalty proceedings under Clause (c) of Sub-Section (1) of Section 271 and, accordingly, it is now not possible to contend that, since satisfaction was not recorded in the original assessment order, the penalty proceedings are vitiated. Thus accordingly, interfere and set aside the order of the Tribunal and restore the order of the Assessing Authority, as confirmed by the first Appellate Authority.

Summary

Issues:
1. Validity of penalty proceedings under Section 271(1)(c) of the Income Tax Act.
2. Interpretation of Section 271(1B) of the Income Tax Act with retrospective effect.

Analysis:
1. The judgment pertains to two appeals challenging the same Tribunal decision regarding penalty proceedings under Section 271(1)(c) of the Income Tax Act. The Deputy Commissioner of Income Tax had passed an assessment order for the Assessment Year 2000-2001, adding income and disallowing certain expenditures. The order also initiated penalty proceedings under Sections 271(1)(c) and 271A of the Act. The assessee had agreed to the additions made in the assessment order, but later contested the penalty proceedings, arguing that there was no suppression or overstatement of income on their part. The Tribunal, following Supreme Court precedent, held that penalty proceedings without the Assessing Officer recording satisfaction are invalid.

2. The appeals were filed before the law pronounced by the Supreme Court in Dilip N. Shroff vs. Joint Commissioner of Income-Tax, which emphasized the necessity of recording satisfaction for penalty proceedings. However, during the pendency of the appeals, Section 52 of the Finance Act, 2008, inserted Sub-Section (1B) in Section 271 of the Act with retrospective effect from April 1, 1989. This new provision deemed that if an assessment order contains directions for penalty proceedings under Section 271(1)(c), it constitutes satisfaction of the Assessing Officer for initiating penalty proceedings. Consequently, the Court held that the retrospective application of this provision validated the penalty proceedings initiated in the original assessment order, overturning the Tribunal's decision.

3. The Court's interpretation of Section 271(1B) with retrospective effect led to setting aside the Tribunal's order and reinstating the Assessing Authority's decision. By deeming the assessment order as constituting satisfaction for penalty proceedings, the Court found the penalty proceedings to be valid. Therefore, the appeals challenging the penalty proceedings under Section 271(1)(c) were disposed of in favor of the revenue authorities.