2014 (12) TMI 396 - HC - Income Tax

Initiation of penalty u/s 271(c) Additions made during survey and penalty levied - Held that - The levy of penalty is one of the deterrents provided for under the Act, to ensure that no assessee furnishes incorrect and wrong information or facts and figures in the returns the Tribunal was rightly of the view that if the facts and figures noticed during the course of survey are accepted by the assessee, no occasion would arise for levying penalty and the absence of an endorsement or observation in the order of assessment for initiation of proceedings u/s 271 (c) of the Act would disable the AO from taking any steps in that direction as decided in Commissioner of Income-Tax v. Reliance Petroproducts Pvt.Ltd. 2010 (3) TMI 80 - SUPREME COURT thus, the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
Initiation of penalty proceedings under Section 271(c) of the Income Tax Act.

Analysis:
The case involved the initiation of penalty proceedings under Section 271(c) of the Income Tax Act against the respondent, who was involved in construction activities. The respondent had submitted returns for the assessment year 1995-1996, showing an income of Rs. 2,40,180. However, discrepancies were noted during a survey, where it was found that the income projected in a loan application was higher than the actual income declared in the returns. The Assessing Officer passed an order of assessment, taking the total income at Rs. 10,08,200 and imposed income tax accordingly.

The main contention revolved around whether the initiation of penalty proceedings under Section 271(c) was valid. The appellant argued that the absence of an explicit mention in the assessment order regarding the initiation of penalty proceedings did not preclude the Assessing Officer from taking such steps, citing relevant legal precedents. On the other hand, the respondent contended that the basis for adding income was due to the absence of vouchers for certain expenses, and the figures suggested by the Assessing Officer were accepted to avoid further complications. The respondent emphasized that the Assessing Officer did not record satisfaction in the assessment order regarding the initiation of penalty proceedings, as required by law.

The court delved into the legal provisions of Section 271 of the Income Tax Act, emphasizing that penalty serves as a deterrent against furnishing incorrect information. The court highlighted that the department need not establish mens rea on the part of the assessee for levying penalties. The insertion of sub-Section (1B) in Section 271 eliminated the requirement for the Assessing Officer to record reasons, thereby removing the need to establish mens rea.

The court referenced relevant case laws and judgments, including the Supreme Court's decision in Mak Data P. Ltd. v. Commissioner of Income-Tax, which emphasized the importance of the Assessing Officer's satisfaction for initiating penalty proceedings. The court concluded that the absence of an explicit mention in the assessment order regarding the initiation of penalty proceedings rendered such proceedings untenable, as per legal interpretations and precedents. The court upheld the decision of the Tribunal, dismissing the appeal and emphasizing the necessity of complying with legal provisions in initiating penalty proceedings under Section 271(c) of the Income Tax Act.