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2013 (7) TMI 808 - HC - Income TaxWhether the Tribunal was justified in differing with the view taken by the first appellate authority and holding that the penalty was leviable under section 271(1)(c) Power to impose penalty under section 271 of the Act depends upon the satisfaction of the ITO in the course of the pro-ceedings - It cannot be exercised if he is not satisfied and has not recorded his satisfaction about the existence of the con-ditions specified in clauses (a), (b) and (c) before the proceedings are concluded In the absence of a clear finding as to the concealment of income or deliberately furnishing inaccurate particulars, the initiation of penalty proceedings will be without jurisdiction the law is correctly laid down in CIT V/s. Ram Commercial Enterprises Ltd. (1998 (10) TMI 13 - DELHI High Court) . Validity of proceddings u/s 271 - Held that - The initiation of the proceedings under sec-tion 271(1)(c) against the assessee for the A.Y. 1982-83 and 1983-84 are not valid in law and the CIT (Appeals) had rightly set aside the same and that the IAT erred in law in sustaining the penalties and reversing the order of the CIT (Appeals) AO should record in the assessment order his satisfaction that the assessee had either concealed the income or furnished inaccurate particulars of income in his return before imposing penalty - Court noticed that in the assessment orders passed by the AO for the A.Y 1982-83 and for the A.Y. 1983-84 no such satisfaction is recorded - decided in favour of assessee.
Issues Involved:
1. Legality of penalty imposition under section 271(1)(c) of the Income-tax Act, 1961. 2. Requirement of satisfaction recording by the Assessing Officer in the assessment order. 3. Validity of penalty proceedings initiated without explicit satisfaction in the assessment order. Detailed Analysis: 1. Legality of Penalty Imposition Under Section 271(1)(c): The core issue in these appeals pertains to whether the Income-tax Appellate Tribunal was justified in sustaining the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961, despite the first appellate authority setting it aside. The Tribunal's decision was challenged on the grounds that the conditions for levying penalty were not met, as the returns were accepted based on full disclosure by the assessee. The assessee argued that the mere disallowance of certain expenditures does not justify penalty imposition. The assessee relied on cases like CIT v. Reliance Petroproducts Pvt. Ltd. and CIT v. SAS Pharmaceuticals to support their argument. 2. Requirement of Satisfaction Recording by the Assessing Officer: The assessee contended that for the penalty under section 271(1)(c) to be valid, the Assessing Officer must form an opinion and record satisfaction of concealment or furnishing inaccurate particulars of income in the assessment order. This requirement was not met in the present cases, as the assessment orders lacked explicit satisfaction. The assessee cited several judgments, including V. V. Projects and Investments Pvt. Ltd. v. Deputy CIT and CIT v. Munish Iron Store, to argue that the absence of recorded satisfaction constitutes a jurisdictional defect, rendering the penalty proceedings invalid. 3. Validity of Penalty Proceedings Initiated Without Explicit Satisfaction: The Revenue argued that it was not necessary for the Assessing Officer to record in the assessment order that the return was incorrect or false, and that penalty could be imposed even if the assessment order did not explicitly state this. They relied on the Supreme Court's decision in D. M. Manasvi v. CIT, which held that satisfaction during assessment proceedings suffices, and the actual issuance of notice can follow. However, the assessee countered that subsequent judgments, including those by the Delhi High Court in Ram Commercial Enterprises Ltd. and the Punjab and Haryana High Court in Munish Iron Store, have emphasized the necessity of recording satisfaction in the assessment order itself. Court's Conclusion: The court examined the legal requirement for recording satisfaction by the Assessing Officer before initiating penalty proceedings. It referenced multiple judgments to conclude that the absence of recorded satisfaction in the assessment order is a jurisdictional defect that cannot be cured by subsequent proceedings. The court found that in the assessment orders for the years 1982-83 and 1983-84, the Assessing Officer did not record any satisfaction of concealment or furnishing inaccurate particulars of income. Similarly, for the assessment year 1984-85, the mere statement that penalty proceedings were initiated was deemed insufficient. Final Judgment: The court allowed the appeals, setting aside the common orders of the A. P. Income-tax Appellate Tribunal for the assessment years 1982-83, 1983-84, and 1984-85. The substantial question of law was answered in favor of the assessee, emphasizing the necessity for explicit satisfaction recording by the Assessing Officer in the assessment order before initiating penalty proceedings under section 271(1)(c) of the Income-tax Act.
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