2017 (1) TMI 1726 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - Assessment u/s 153A - HELD THAT - Explanation 3 is not attracted in the facts and circumstances of instant case. After search, the assessment and subsequent proceedings are carried out under special provisions of the Act. The Legislature in its wisdom has specifically mentioned about issuance of notices u/s. 142(1) or u/s. 148 in Explanation 3. There is no reference to notice u/s. 153A of the Act. Where return of income is filed in pursuance to search action, provisions of Explanation 5 or 5A as the case may be are attracted, provided other conditions set out in the said explanations are fulfilled. Explanation 3 is attracted only where the assessment is made under regular provisions and not in case of search. Thus, we are of the considered view that the CIT (Appeals) has erred in invoking the provisions of Explanation 3 for confirming penalty u/s. 271(1)(c) of the Act in the present case. Therefore, no case for levy of penalty u/s. 271(1)(c) r.w. Explanation 3 is made out against the assessee. The Department is not in appeal against the order of Commissioner of Income Tax (Appeals). - Decided in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Applicability of Explanation 3 and Explanation 5A to Section 271(1)(c).
3. Validity of penalty proceedings based on the satisfaction recorded by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The assessees challenged the levy of penalty under Section 271(1)(c) for different assessment years, which was confirmed by the Commissioner of Income Tax (Appeals). The penalties were levied following a search and seizure action under Section 132 on the Mulay Group, to which the assessees belonged. The assessees filed returns in response to notices issued under Section 153A, and certain additions/disallowances were made by the Assessing Officer, which the assessees accepted without filing appeals. Penalty proceedings were initiated under Section 271(1)(c), and penalties were levied for the respective assessment years.

2. Applicability of Explanation 3 and Explanation 5A to Section 271(1)(c):
The primary contention was whether the penalties levied under Section 271(1)(c) were justified under Explanation 3 or Explanation 5A of the Act. The Commissioner of Income Tax (Appeals) had invoked Explanation 3 for confirming the penalties, while the Assessing Officer initially recorded satisfaction under Explanation 1 and later invoked Explanation 5A at the time of levying penalties. The Tribunal observed that Explanation 3 applies where the return of income is filed under Sections 142 or 148, not under Section 153A, which was the case here. Explanation 5A is applicable when incriminating material is found during a search, which was not the case here. Therefore, the Tribunal concluded that Explanation 3 was not applicable, and the Commissioner of Income Tax (Appeals) erred in invoking it.

3. Validity of Penalty Proceedings Based on the Satisfaction Recorded by the Assessing Officer:
The Tribunal noted discrepancies in the satisfaction recorded by the Assessing Officer for initiating penalty proceedings and the actual levy of penalties. In ITA No. 288/PUN/2013, the Assessing Officer did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars of income. In ITA No. 289/PUN/2013, the Assessing Officer's satisfaction and the penalty order were incoherent, mentioning both concealment and furnishing of inaccurate particulars, as well as delay in filing the return. In ITA No. 290/PUN/2013, the Assessing Officer accepted the return of income without any addition but initiated penalty proceedings for concealment of income, later invoking Explanation 5A. The Tribunal emphasized that penalty proceedings under Section 271(1)(c) are penal in nature and must be construed strictly. The satisfaction recorded by the Assessing Officer and the penalty order must be congruent regarding the specific charge for levy of penalty. The Tribunal found inconsistencies in the recording of satisfaction and the penalty orders, leading to the conclusion that the penalties were not sustainable.

Conclusion:
The Tribunal allowed all three appeals by the assessees, setting aside the impugned orders confirming the penalties. The Tribunal emphasized that the provisions of Explanation 3 were not applicable in cases where returns were filed under Section 153A, and there was no incriminating material found during the search to justify the application of Explanation 5A. The Tribunal also highlighted the importance of congruence between the satisfaction recorded by the Assessing Officer and the penalty order for the specific charge under Section 271(1)(c).