2017 (1) TMI 188 - AT - Income Tax

Levy of penalty u/s 271 (1) (c) - non recording of satisfaction for initiating penalty - assessee furnished the returns of income in response to the notice issued under section 153A - Held that - Assessing Officer has to at initial stage itself come to a finding as to whether the additions made in the hands of assessee justify the levy of penalty proceedings under section 271(1)(c) of the Act on account of concealment of income or furnishing of inaccurate particulars of income. We find that in the present set of facts, the Assessing Officer has recorded satisfaction for initiating penalty proceedings on account of concealment of income and furnishing of inaccurate particulars of income. Under the provisions of section 271(1)(c) of the Act, penalty for concealment is leviable where the assessee has fulfilled either conditions i.e. concealment of income or furnishing of inaccurate particulars of income. The Assessing Officer while initiating penalty proceedings has to be satisfied as to under which limb, the penalty is leviable and consequent thereto, issue notice in this regard. However, in the facts of the present case and as pointed out hereinabove, the Assessing Officer has failed to record satisfaction correctly and consequently, we hold that initiation of penalty proceedings against the assessee are not valid for non-recording of satisfaction by the Assessing Officer while completing assessment proceedings. Assessing Officer has failed to strike off either of the limbs of section 271(1)(c) of the Act, which are not satisfied by the assessee and consequently, notice issued under section 274 r.w.s. 271(1)(c) of the Act is bad in law and order levying penalty for concealment thereafter, is infructuous. Accordingly, we hold so. The Statute has provided distinction between concealment of income and furnishing of inaccurate particulars of income, which may be thin line of distinction, but the same has to be kept in mind while recording satisfaction by the Assessing Officer. - Decided in favour of assessee.

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Enhancement of penalty from 100% to 150% by CIT(A).
3. Validity of the notice issued under section 274 r.w.s. 271(1)(c).
4. Satisfaction recorded by the Assessing Officer while initiating penalty proceedings.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The core issue in the appeals was the levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, for concealment of income or furnishing inaccurate particulars of income. The penalty was initiated following a search and seizure action under section 132, where incriminating documents revealed that the assessee had received on-money on the sale of plots and shops, which was not disclosed in the returns filed under section 139(1). The Assessing Officer observed that the additional income was disclosed only due to the search operations and would have otherwise remained concealed, thus initiating penalty proceedings under section 271(1)(c).

2. Enhancement of Penalty by CIT(A):
The CIT(A) enhanced the penalty from 100% to 150%, stating that the appellant had not only concealed its income but also misrepresented the facts. The assessee contended that the CIT(A) had no power to enhance the penalty and that the additional income was declared to buy peace and cooperate with the department, without evidence of actual earnings. The Tribunal noted that the CIT(A) confirmed the penalty on the grounds that the appellant misrepresented facts and thus justified a higher penalty rate.

3. Validity of Notice Issued under Section 274 r.w.s. 271(1)(c):
The assessee challenged the validity of the notice issued under section 274 r.w.s. 271(1)(c), arguing that the Assessing Officer failed to record proper satisfaction as to whether the assessee had concealed income or furnished inaccurate particulars. The Tribunal referred to the judgment in Kanhaiyalal D. Jain Vs. ACIT, emphasizing that the Assessing Officer must specify the exact charge against the assessee in the notice. The Tribunal found that the notice issued was ambiguous, as it did not strike off the irrelevant limb, thereby prejudicing the assessee's right to a fair hearing.

4. Satisfaction Recorded by the Assessing Officer:
The Tribunal examined whether the Assessing Officer recorded proper satisfaction while initiating penalty proceedings. It was noted that the Assessing Officer mentioned both concealment of income and furnishing inaccurate particulars in the satisfaction recorded, which was found to be incorrect. The Tribunal highlighted that the satisfaction must be clear and specific to one of the limbs. The Tribunal concluded that the satisfaction recorded and the subsequent notice were invalid due to this ambiguity, thus vitiating the penalty proceedings.

Conclusion:
The Tribunal allowed the appeals, quashing the penalty proceedings due to the invalid notice and improper satisfaction recorded by the Assessing Officer. It emphasized the need for clear and specific charges in the notice and satisfaction recorded, as per the legal requirements under section 271(1)(c) and relevant judicial precedents. The enhancement of penalty by CIT(A) was also found unjustified given the circumstances and the lack of clear evidence of misrepresentation by the assessee.

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