2018 (8) TMI 842 - AT - Income Tax

Levy of penalty u/s 271 - while confirming the penalty imposed by the AO, CIT(A) enhanced the penalty amount - Held that - The recording of satisfaction without mentioning of specific charge is against the principles of natural justice. The assessee should know the specific charge against which he has to defend in penalty proceedings. It is further observed that the Assessing Officer has not levied penalty u/s. 271(1)(c) in respect of additional income declared after recording of satisfaction. The Commissioner of Income Tax (Appeals) in First Appellate proceedings levied penalty on the above said additional income by exercising power of enhancement. It is a well settled law that the authority who has recorded satisfaction alone can levy penalty. In our considered view, the Commissioner of Income Tax (Appeals) in the present case has exceeded his jurisdiction and has levied penalty on the addition for which the satisfaction was recorded by the Assessing Officer. A conjoint reading of satisfaction recorded and the order levying penalty shows that there was ambiguity in the mind of Assessing Officer while levying penalty. The satisfaction has been recorded for concealment and penalty has been levied for both the charges i.e. inaccurate particulars of income and concealment of income. The order levying penalty set aside - Decided in favor of assessee.

Summary

Issues:
Levy of penalty under section 271(1)(c) for undisclosed income and interest income, Defect in recording satisfaction for penalty proceedings.

Analysis:
1. Levy of Penalty on Undisclosed Income:
The case involves a land developer who declared additional income during assessment proceedings. The Assessing Officer initiated penalty proceedings under section 271(1)(c) for undisclosed income but only levied penalty on unrecorded interest income, not on the additional income declared by the assessee. The Commissioner of Income Tax (Appeals) enhanced the penalty on the undisclosed income. The Tribunal found that the Commissioner exceeded jurisdiction by levying penalty on the undisclosed income for which the satisfaction was recorded by the Assessing Officer. The lack of jurisdiction led to the decision to delete the penalty on the undisclosed income.

2. Defect in Recording Satisfaction:
The Assessing Officer failed to specify the charge under section 271(1)(c) for which penalty proceedings were initiated regarding the additional income declared by the assessee. This lack of specificity violates principles of natural justice as the assessee must know the specific charge to defend in penalty proceedings. The Tribunal ruled that the recording of satisfaction without mentioning a specific charge is against legal requirements and not sustainable. The ambiguity in recording satisfaction led to the decision to set aside the penalty order.

3. Penalty on Interest Income:
Regarding the unrecorded interest income, the Assessing Officer initiated penalty proceedings for concealment of income. However, the penalty order invoked both charges under section 271(1)(c) - furnishing inaccurate particulars of income and concealing income. This ambiguity in the penalty order, where satisfaction was recorded for one breach but penalty was levied for another, was found impermissible. Citing a decision of the Hon'ble Bombay High Court, the Tribunal set aside the penalty order due to the inconsistency between the satisfaction recorded and the penalty imposed.

In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the penalty orders due to jurisdictional issues, defects in recording satisfaction, and inconsistencies between satisfaction and penalty imposition. The judgment highlights the importance of adhering to legal requirements and principles of natural justice in penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961.