2020 (1) TMI 1176 - AT - Income Tax

Penalty us 271(1)(c) - non recording of satisfaction - defectiv notice - whether the penalty proceedings are initiated for concealment of income or famishing of inaccurate particulars of income - HELD THAT - On perusal of assessment order as well as penalty order it is very clear from the records that the Ld. AO has not arrived at clear satisfaction as required under the Act even in assessment order and said lapses is continued in show cause notice issued us 274 r.w.s. 271(1)(c) of the I.T.Act 1961. Further even in penalty order the Ld. AO has not arrived at clear satisfaction which is evident from the fact that he has concluded his penalty proceedings and levied penalty u/s 271(1)(c) on both limbs. See M/S MANJUNATHA COTTON AND GINNING FACTORY OTHS. M/S. V.S. LAD SONS 2013 (7) TMI 620 - KARNATAKA HIGH COURT From the above it is very clear that the satisfaction required to be recorded before initiation of penalty proceedings u/s 271(1)(c) is not discernable whether the penalty proceedings are initiated for concealment of particulars of income or furnishing of inaccurate particulars of income either in assessment order or in the show cause notice issued for levying penalty. Therefore we are of the considered view that the penalty proceedings initiated u/s 271(1)(c) is void ab initio and liable to be quashed - Decided in favour of assessee.

Summary

Issues:
1. Initiation of penalty proceedings without clear satisfaction under section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of penalty notices issued under section 274 r.w.s 271.
3. Justification of levy of concealment penalty on denial of set off of business loss against salary income.

Issue 1: Initiation of penalty proceedings without clear satisfaction under section 271(1)(c) of the Income Tax Act, 1961:
The appeal challenged the penalty order passed by the Ld. Assistant Commissioner of Income Tax, Circle - 19(2), Mumbai, levying concealment penalty without appreciating the facts and circumstances of the case. The argument centered on the lack of clear satisfaction recorded by the Ld. AO before initiating penalty proceedings under section 271(1)(c). The appellant contended that the notices issued under section 274 r.w.s 271 were void ab initio as it was unclear whether the penalty proceedings were for concealment of income or furnishing inaccurate particulars of income. The Tribunal held that the penalty proceedings initiated without clear satisfaction were void ab initio, citing legal precedents supporting the requirement for a clear satisfaction before initiating penalty proceedings.

Issue 2: Validity of penalty notices issued under section 274 r.w.s 271:
The appellant argued that the penalty notices issued under section 274 r.w.s 271 were invalid as they did not specify the limb under which the penalty was proposed to be levied. It was contended that the penalty order was bad in law as it was based on both limbs of section 271(1)(c), which was impermissible. The Tribunal agreed with the appellant, emphasizing the necessity for the Ld. AO to categorically specify the limb under which the penalty proceedings were initiated. The Tribunal referenced legal decisions to support the position that penalty proceedings initiated for one limb and levied for another rendered the penalty invalid and void ab initio.

Issue 3: Justification of levy of concealment penalty on denial of set off of business loss against salary income:
The appellant challenged the levy of concealment penalty on the denial of set off of business loss against salary income, arguing that the penalty was unjustified. The appellant contended that there was a bona fide explanation provided regarding the set off of business loss against salary income, which was not found to be false. Additionally, the appellant highlighted discrepancies in the assessed income and penalty imposed, asserting that the penalty was unjustified based on the quantum proceedings. The Tribunal agreed with the appellant, holding that the levy of concealment penalty was unjustified and directed the Ld. AO to delete the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961.

This detailed analysis of the judgment covers the issues raised in the appeal, providing a comprehensive understanding of the legal arguments and the Tribunal's decision on each issue involved.