2018 (12) TMI 288 - AT - Income Tax

Levying penalty u/s.271(1)(c) - Recording of valid/ proper satisfaction by the AO - default of furnishing of inaccurate particulars of income - Held that - At the time of initiation of penalty proceedings in the assessment, AO did not mention any of the limbs of clause (c) of section 271(1) in the order of assessment. The penalty order suggests the levy of penalty for the default of furnishing of inaccurate particulars of income. This manner of recording of satisfaction suggests the existence of ambiguity with reference to applicability of specific limb of the clause. The same falls short of the legal requirement. Considering the binding judgments such penalty order is unsustainable in law legally. AO is under obligation to specify the correct limb at the time of initiation as well as at the time of levy of penalty. Penalty order is liable to be quashed on this legal issue. Thus, the order of CIT(A) is set-aside and direct the AO to delete the penalty. Accordingly, the grounds of appeal raised by the assessee are allowed.

Summary

Issues:
1. Validity of penalty u/s.271(1)(c) of the Income Tax Act.
2. Requirement of recording valid satisfaction by the Assessing Officer for penalty proceedings.

Analysis:
1. The appeal was against the order of CIT(A) sustaining the penalty u/s.271(1)(c) of the Income Tax Act. The assessee contended that no default was committed during the relevant year and that the penalty was sustained without proper appreciation of facts. The AO had initiated penalty proceedings without recording valid satisfaction, which was a crucial legal requirement. The First Appellate Authority confirmed the penalty, leading to the appeal before the Tribunal.

2. The Tribunal noted that the AO failed to record valid satisfaction in the assessment order when initiating penalty proceedings u/s.271(1)(c) of the Act. The legal necessity of specifying the limb of clause (c) of section 271(1) was not met by the AO, as per binding judgments. The Tribunal cited relevant case laws to emphasize the importance of valid satisfaction for imposing penalties. The AO's failure to specify the correct limb of the clause both at initiation and levy stages rendered the penalty unsustainable in law due to deficiency in valid satisfaction.

3. The Tribunal examined the satisfaction recorded by the AO at the time of initiation and levy of penalty. The order of assessment did not mention any specific limb of clause (c) of section 271(1) of the Act, creating ambiguity regarding the applicability of the penalty provision. The penalty order indicated the default of furnishing inaccurate particulars of income, highlighting the lack of clarity in specifying the correct limb. Based on the legal requirements and precedents, the Tribunal concluded that the penalty order was unsustainable in law due to the AO's failure to specify the correct limb at the relevant stages.

4. Consequently, the Tribunal set aside the order of CIT(A) and directed the AO to delete the penalty imposed u/s.271(1)(c) of the Act. The grounds of appeal raised by the assessee were allowed, and the appeal was deemed successful. The Tribunal emphasized the importance of complying with legal requirements, particularly regarding the recording of valid satisfaction by the Assessing Officer for initiating and levying penalties under the Income Tax Act.

Conclusion:
The Tribunal allowed the appeal, quashed the penalty order, and directed the AO to delete the penalty imposed u/s.271(1)(c) of the Income Tax Act due to the deficiency in valid satisfaction recorded by the Assessing Officer. The judgment highlighted the legal necessity of specifying the correct limb of clause (c) of section 271(1) at the initiation and levy stages of penalty proceedings to ensure the sustainability of penalties under the Act.