2017 (1) TMI 1256 - AT - Income Tax

Penalty under section 271(1)(c) - Invalid notice - non-recording of satisfaction - difference between concealment of income and furnishing of inaccurate particulars of income - Held that - 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. Further, the 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

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of satisfaction recorded by the Assessing Officer.
3. Application of Explanation 5A to section 271(1)(c) of the Act.
4. Validity of notice issued under section 274 r.w.s. 271(1)(c) of the Act.
5. Jurisdictional issues concerning the initiation of penalty proceedings.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The primary issue in these appeals is the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961. The penalty was levied on the basis of additional income declared by the assessee pursuant to a search operation. The assessee contended that the penalty proceedings were initiated without specifying whether the penalty was for concealment of income or for furnishing inaccurate particulars of income.

2. Validity of Satisfaction Recorded by the Assessing Officer:
The assessee argued that the Assessing Officer failed to record clear satisfaction as to whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. The Tribunal referred to the requirement under section 271(1)(c) that the Assessing Officer must record satisfaction during the assessment proceedings. The Tribunal found that the satisfaction recorded by the Assessing Officer was ambiguous, as it referred to both concealment of income and furnishing inaccurate particulars of income. This ambiguity in recording satisfaction was deemed inadequate for initiating penalty proceedings.

3. Application of Explanation 5A to Section 271(1)(c) of the Act:
Explanation 5A to section 271(1)(c) was discussed in detail. The Tribunal noted that Explanation 5A applies to searches conducted on or after June 1, 2007, and deems the assessee to have concealed income if certain conditions are met. In the present case, the additional income was declared pursuant to a search, and the Assessing Officer applied Explanation 5A. However, the Tribunal emphasized that the satisfaction for initiating penalty proceedings should clearly indicate whether it is for concealment of income or for furnishing inaccurate particulars of income.

4. Validity of Notice Issued under Section 274 r.w.s. 271(1)(c) of the Act:
The Tribunal examined the validity of the notice issued under section 274 r.w.s. 271(1)(c) of the Act. It was argued that the notice did not specify the exact charge against the assessee, as it did not strike off the irrelevant portion. The Tribunal referred to various judicial precedents, including the Karnataka High Court's decision in CIT Vs. SSA’s Emerald Meadows, which held that a notice under section 274 must clearly specify the charge. The Tribunal concluded that the notice issued in the present case was invalid due to the failure to specify the exact charge, thereby prejudicing the assessee's right to a reasonable opportunity of being heard.

5. Jurisdictional Issues Concerning the Initiation of Penalty Proceedings:
The Tribunal addressed the jurisdictional issue of whether the Assessing Officer correctly recorded satisfaction while initiating penalty proceedings. It was held that the satisfaction recorded was not in accordance with the legal requirements, as it did not clearly indicate whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. Consequently, the initiation of penalty proceedings was deemed invalid.

Conclusion:
The Tribunal allowed the appeals where the satisfaction recorded by the Assessing Officer was found to be ambiguous and the notice issued under section 274 was invalid. In cases where the satisfaction was correctly recorded, the penalty was upheld. The Tribunal emphasized the importance of clear and specific satisfaction by the Assessing Officer and the need for the notice to unambiguously specify the charge against the assessee.