2016 (4) TMI 552 - AT - Income Tax

Penalty u/s 271(1)(c) - Held that - Penalty levied u/s 271(1)(c) of the Act is liable to be cancelled on the ground that there was no proper recording of satisfaction in the order of assessment and that the show cause notice u/s 274 of the Act does not satisfy the specific charge against the assessee. Consequently the orders imposing penalty for all the four assessment years are held to be invalid and illegal and are hereby cancelled. - Decided in favour of assessee

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act.
2. Application of Explanation 5 to Section 271(1)(c) for immunity from penalty.
3. Proper satisfaction and recording of satisfaction by the Assessing Officer (AO).
4. Validity of the show cause notice under Section 274 of the Income Tax Act.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):
The assessee filed returns for the assessment years 2001-02, 2002-03, 2004-05, and 2005-06, admitting specific incomes. A search and seizure operation under Section 132 of the Income Tax Act revealed undisclosed income and cash amounting to Rs. 4,12,22,035/-. The assessee disclosed this income under Section 132(4) and later revised it to Rs. 4,32,62,823/-. The AO accepted the disclosures and assessed the income accordingly, initiating penalty proceedings under Section 271(1)(c) for concealment and furnishing inaccurate particulars of income.

2. Application of Explanation 5 to Section 271(1)(c) for Immunity from Penalty:
The assessee argued for immunity under Explanation 5 to Section 271(1)(c), claiming all conditions for immunity were met. The CIT(A) initially held that the assessee met conditions (i) and (ii) but not (iii) (payment of taxes with interest). However, upon rectification under Section 154, CIT(A) acknowledged that the taxes and interest were paid, entitling the assessee to immunity.

3. Proper Satisfaction and Recording of Satisfaction by the Assessing Officer (AO):
The AO's order of assessment included a reference to initiating penalty proceedings but did not specify whether the penalty was for concealing income or furnishing inaccurate particulars. The Tribunal noted that the satisfaction for initiating penalty proceedings must be discernible from the assessment order. The AO's lack of specific comments and the general nature of the show cause notice rendered the initiation of penalty proceedings improper.

4. Validity of the Show Cause Notice under Section 274:
The show cause notice under Section 274 did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. Following the precedent set by the ITAT Kolkata Bench in the case of Satyananda Achariya Biswas vs DCIT, the Tribunal held that such a defect in the notice renders the penalty order illegal.

Conclusion:
The Tribunal allowed the assessee's appeals, holding that the penalty levied under Section 271(1)(c) was invalid due to improper recording of satisfaction and a defective show cause notice under Section 274. The revenue's appeals were dismissed as the assessee had satisfied all conditions for immunity under Explanation 5 to Section 271(1)(c), including the payment of taxes and interest. The orders imposing penalty for all four assessment years were cancelled.