2017 (12) TMI 1338 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - Held that - Penalty under section 271(1)(c) could be levied on both the limbs of said section. We find no merit in the plea of learned Departmental Representative for the Revenue in this regard, wherein the returned income was finally accepted by the CIT(A) / Tribunal and the protective addition made in the hands of assessee was deleted. Accordingly, we hold that penalty order passed in the case suffers from infirmity and the same is invalid in law. Accordingly, we direct the Assessing Officer to delete said penalty under section 271(1)(c) of the Act at ₹ 11,74,601/-. We have in the paras hereinabove have already held that levy of penalty by the Assessing Officer holding the assessee to have concealed income and furnished inaccurate particulars of income was invalid and bad in law and the penalty order passed by the Assessing Officer has been cancelled. Consequently, the enhancement made on such order passed by the Assessing Officer, which is held to be invalid, does not stand. Since the CIT(A) has based his calculation on the order of Assessing Officer holding that the penalty is to be calculated with regard to concealed income of ₹ 1.24 crores and not the additional income of ₹ 32,09,950/-, the CIT(A) observed that the Assessing Officer had mistakenly calculated the same with respect to income of ₹ 32,09,950/-. Accordingly, we delete the penalty levied by the CIT(A) at ₹ 45,43,069/-. The additional ground of appeal is thus, allowed.

Summary

Issues Involved:
Levy of penalty under section 271(1)(c) of the Income Tax Act 1961 based on concealment of income and furnishing inaccurate particulars of income.

Detailed Analysis:

1. Levy of Penalty by Assessing Officer and CIT(A):
The appeal involved the issue of the assessee challenging the penalty levied by the Assessing Officer under section 271(1)(c) of the Act at ?11,74,600, which was later enhanced to ?45,43,069 by the CIT(A). The Assessing Officer initiated penalty proceedings for concealing particulars of income amounting to ?1,24,20,250. The CIT(A) upheld the penalty citing concealment of income under Explanation 1 to section 271(1)(c) of the Act.

2. Jurisdictional Issue and Satisfaction by Assessing Officer:
The first jurisdictional issue raised was regarding the recording of satisfaction by the Assessing Officer for initiating penalty under section 271(1)(c) of the Act. The Act requires the Assessing Officer to record satisfaction on which limb of the section has not been fulfilled by the assessee before issuing a show cause notice. In this case, the Assessing Officer initiated penalty proceedings for concealing income of ?1,24,20,250, without recording satisfaction for the protective addition made. The CIT(A) enhanced the penalty without proper satisfaction as required by law.

3. Invalid Penalty Order and Invalid Enhancement by CIT(A):
The Hon'ble Bombay High Court precedent highlighted that if the initiation of penalty is on one limb and the levy is on another without proper notice, the penalty lacks merit. In this case, the penalty was initiated for concealing income, but the Assessing Officer levied it on both limbs without specific notice. The Tribunal found the penalty order invalid due to the mismatched figures and lack of proper satisfaction. Consequently, the enhancement made by the CIT(A) was also deemed invalid and was deleted.

4. Conclusion and Decision:
The Tribunal held that the penalty order suffered from infirmity and was invalid in law. Therefore, the Assessing Officer was directed to delete the penalty amount of ?11,74,601. The CIT(A)'s enhancement of penalty to ?45,43,069 was also deleted as it was based on the invalid penalty order. The additional ground of appeal was allowed, and the appeal of the assessee was ultimately allowed.

This detailed analysis covers the various issues involved in the judgment regarding the levy of penalty under section 271(1)(c) of the Income Tax Act 1961 and the subsequent decisions by the Assessing Officer, CIT(A), and the Tribunal.