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2017 (12) TMI 1521 - AT - Income TaxLevy of penalty u/s 271(1)(c) - initiation of penalty proceedings without recording satisfaction - contrast between the order levying penalty under section 271(1)(c) and the appellate order - unaccounted investment in purchase of shops - Held that - In the facts of the present case, we find that the Assessing Officer has not recorded any satisfaction as to which limb of section 271(1)(c) of the Act has not been fulfilled and have not issued show cause notice in this regard and hence, initiation of penalty proceedings are bad in law. There was a contrast between the order levying penalty under section 271(1)(c) of the Act and the appellate order, wherein the penalty has been levied by the Assessing Officer for violation of Explanation 1 to section 271(1)(c) of the Act and the CIT(A) has confirmed the same for furnishing inaccurate particulars of income by concealing the income of ₹ 85 lakhs. First of all, the Assessing Officer has failed to record any satisfaction and further, the order of the Assessing Officer levying penalty is for concealment of income and the order of CIT(A) confirming the levy of penalty is on furnishing of inaccurate particulars of income. Such contrary orders by the Assessing Officer and the CIT(A) cannot survive as they have failed to come to conclusion as to whether the assessee has concealed its income or furnished inaccurate particulars of income. It cannot be a case of satisfaction of both of limbs, one by the Assessing Officer and the second by the CIT(A). Hence, there is no merit in levy of penalty under section 271(1)(c) of the Act where the initiation of penalty proceedings is without recording satisfaction. Further, levy of penalty under section 271(1)(c) of the Act, which has been levied by the Assessing Officer for concealment of income but has been confirmed by the CIT(A) for furnishing inaccurate particulars of income again suffers from infirmities and cannot be upheld. - Decided in favour of assessee.
Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961. 2. Concealment of income by making unaccounted investment. 3. Validity of revised return filed after survey action. 4. Applicability of Explanation 1 to section 271(1)(c) of the Act. 5. Recording of satisfaction by the Assessing Officer while initiating penalty proceedings. 6. Validity of penalty notice under section 274 r.w.s. 271(1)(c) of the Act. 7. Distinction between concealment of income and furnishing inaccurate particulars of income. Detailed Analysis: 1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961: The primary issue in the appeal was the levy of penalty amounting to ?25,50,000/- under section 271(1)(c) of the Act. The penalty was imposed on the assessee for allegedly concealing income by making unaccounted investments in the purchase of shops amounting to ?85,00,000/-. The Assessing Officer (AO) initiated penalty proceedings on the basis that the revised return filed by the assessee, which included the additional income, was not voluntary and thus constituted concealment of income. 2. Concealment of Income by Making Unaccounted Investment: The CIT(A) upheld the AO's decision, observing that the assessee had made undisclosed investments in shops, which was admitted during the survey. The revised return filed by the assessee was seen as an admission of concealment. The CIT(A) stated, "The revision of return incorporating the declaration of ?85,00,000/- during survey is testimony of the fact that the assessee is admitting its concealment." 3. Validity of Revised Return Filed After Survey Action: The assessee argued that the additional income of ?85,00,000/- was offered in the revised return, which was accepted by the AO. It was contended that since the revised return was filed under section 139(5) of the Act and accepted, it should be considered a valid return, and no penalty should be levied. The Tribunal referred to the judgment in CIT Vs. SAS Pharmaceuticals, where it was held that penalty cannot be imposed if the income is declared in the return and accepted by the AO. 4. Applicability of Explanation 1 to Section 271(1)(c) of the Act: The AO and CIT(A) applied Explanation 1 to section 271(1)(c) of the Act, which deals with cases where income is concealed or inaccurate particulars are furnished. The assessee contended that Explanation 1 applies only when there is an addition or disallowance made by the AO, which was not the case here as the additional income was declared in the revised return and accepted as such. 5. Recording of Satisfaction by the Assessing Officer: The Tribunal emphasized the importance of the AO recording satisfaction regarding which limb of section 271(1)(c) (concealment of income or furnishing inaccurate particulars) was violated. The Tribunal found that the AO failed to record such satisfaction, rendering the initiation of penalty proceedings invalid. The Tribunal cited the Bombay High Court's decision in CIT Vs. Shri Samson Perinchery, which held that the absence of specific satisfaction vitiates the penalty proceedings. 6. Validity of Penalty Notice under Section 274 r.w.s. 271(1)(c) of the Act: The Tribunal noted that the penalty notice issued under section 274 did not specify the exact charge against the assessee, whether it was for concealment of income or furnishing inaccurate particulars. This ambiguity in the notice was deemed invalid, following the principles laid down by the Karnataka High Court in CIT Vs. SSA's Emerald Meadows. 7. Distinction Between Concealment of Income and Furnishing Inaccurate Particulars of Income: The Tribunal highlighted the inconsistency between the AO's and CIT(A)'s findings. The AO levied the penalty for concealment of income, while the CIT(A) confirmed the penalty for furnishing inaccurate particulars of income. This contradiction further invalidated the penalty proceedings. Conclusion: The Tribunal allowed the assessee's appeal, holding that the penalty under section 271(1)(c) was not justified. The Tribunal found that the revised return filed by the assessee was valid, the additional income was accepted by the AO, and there was no proper recording of satisfaction by the AO. Consequently, the penalty proceedings were deemed invalid, and the penalty of ?25,50,000/- was cancelled.
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