2019 (1) TMI 281 - AT - Income Tax

Levy of penalty u/s.271(1)(c) - leave encashment expenses added u/s.43B in the assessment order on grounds of concealment of income and furnishing inaccurate particulars - Leave encashment expenses were reported in Form 3CD and the failure to add back the same in computation of income was a bona-fide mistake - Held that - So far as assessment order is concerned, the Assessing Officer has mentioned that penalty proceedings have been initiated for furnishing of inaccurate particulars of income . At the time of levying penalty in the assessment, Assessing Officer mentioned both limbs of clause (c) of section 271(1) i.e. concealment of income as well as furnishing of inaccurate particulars of income . This manner of recording of satisfaction suggests the existence of ambiguity with reference to applicability of specific limb. Penalty order is unsustainable in law legally. The Assessing Officer is under obligation to specify the correct limb at the time of initiation as well as at the time of levy of penalty. The penalty order is liable to be quashed on this legal issue. Thus, the order of CIT(A) is set-aside and direct the Assessing Officer to delete the penalty. - decided in favour of assessee.

Summary

Issues:
1. Levy of penalty u/s.271(1)(c) for leave encashment expenses.
2. Proper satisfaction by the Assessing Officer for penalty proceedings.

Analysis:
1. The main issue in this case revolves around the imposition and confirmation of a penalty under section 271(1)(c) of the Income Tax Act. The appellant contested the penalty of &8377; 5,71,975/- imposed for the disallowance of leave encashment expenses. The Assessing Officer initiated penalty proceedings based on the disallowance of leave encashment, and the penalty was confirmed by the CIT(A). The appellant argued that the penalty was unjustified, citing a bona-fide mistake in not adding back the leave encashment expenses in the computation of income. The Assessing Officer failed to specify the correct limb of clause (c) of section 271(1) of the Act, leading to ambiguity in the penalty order. The appellant's appeal was allowed, and the penalty was directed to be deleted due to the legal deficiency in the penalty order.

2. The second issue pertains to the proper satisfaction by the Assessing Officer for initiating penalty proceedings. The appellant argued that there was a lack of valid satisfaction recorded in the assessment order when the penalty proceedings were initiated. The appellant highlighted the legal requirement of making a specific reference to the relevant limb of section 271(1)(c) of the Act. The Assessing Officer's failure to specify the correct limb at the time of initiating and levying the penalty rendered the penalty order legally unsustainable. Citing precedents and legal obligations, the Tribunal held that the penalty order must specify the correct limb clearly. As a result, the penalty was set aside, and the Assessing Officer was directed to delete the penalty amount.

In conclusion, the Tribunal allowed the appellant's appeal, quashed the penalty order, and directed the deletion of the penalty amount. The judgment emphasized the importance of proper satisfaction and clear specification of the relevant limb of section 271(1)(c) in penalty orders to ensure legal validity and avoid ambiguity in penalty proceedings.