2008 (9) TMI 142 - HC - Income Tax

There is no required format for recording of satisfaction of AO regarding concealment of income - An indication as to the initiation of the penalty proceedings separately in the assessment order is tantamount to an indication as to the satisfaction of the authorities that the assessee has concealed income - Tribunal has erred in deleting the penalty levied u/s 271(1)(c) on ground that mere mention of initiation of penalty proceedings separately did not justify initiation of penalty proceedings

Summary

Issues:
1. Whether the Tribunal erred in law in deleting the penalty under section 271(1)(c) of the Income-tax Act when concealed income was brought to tax under section 147/148 of the Act?

Analysis:
1. The case involved an appeal by the Revenue under section 260A of the Income-tax Act against the order of the Income-tax Appellate Tribunal Delhi Bench. The original assessment for the assessment year 1982-83 was reopened under section 147 of the Act, and penalty proceedings were initiated. The Tribunal set aside the penalty imposed by the Assessing Officer based on the grounds of lack of recorded satisfaction at the time of initiation of penalty. The Commissioner of Income-tax (Appeals) had reduced the penalty, but the Tribunal completely deleted it for both the years in question.

2. The Revenue argued that the Tribunal's reasoning for setting aside the penalty was flawed as there was no statutory requirement for a specific format of recording satisfaction during the assessment. The Revenue cited judgments from the Madras High Court and the Allahabad High Court to support their argument. They highlighted the amendment to section 271(1B) added by the Finance Act, 2008, emphasizing that the order of assessment or reassessment constitutes satisfaction for initiating penalty proceedings under clause (c) of sub-section (1).

3. On the other hand, the assessee contended that penalty proceedings could not be initiated unless there was an express recording of satisfaction during the assessment. They relied on judgments from the Supreme Court, Delhi High Court, and this court to support their argument. They emphasized the importance of explicit recording of satisfaction in the order of assessment for the initiation of penalty proceedings.

4. The High Court analyzed the statutory provision of section 271(1) and concluded that the law only required the existence of satisfaction during the assessment, without specifying a particular format for recording it. The Court distinguished various judgments cited by both parties to establish that the presence of satisfaction during the assessment was the key factor for initiating penalty proceedings. They emphasized that the absence of satisfaction could not be inferred merely from the mention of initiating penalty proceedings separately, especially when coupled with the findings of the assessment.

5. Ultimately, the High Court held that the Tribunal's view that the mention of initiating penalty proceedings separately in the assessment order was insufficient to justify the initiation of penalty proceedings was incorrect. The Court set aside the Tribunal's decision and remanded the matter back to the Tribunal for a fresh decision on the issue of penalty in accordance with the law. The judgment was delivered in favor of the Revenue, allowing the appeal in the specified terms.