2019 (1) TMI 1403 - AT - Income Tax

Penalty u/s 271(1)(c) - Revision u/s 263 - accepting the claim of the assessee that the lease rent was rightly shown by it under the head Income from House property , had thus allowed excess claim of deduction under Sec. 24(a) - Held that - CIT-A had merely initiated penalty proceedings for furnishing of inaccurate particulars of income, but had nowhere recorded his satisfaction as to furnishing of inaccurate particulars of income by the assessee, therefore, the same suffers from a jurisdictional defect, which in our considered view renders the penalty imposed by him under Sec. 271(1)(c) as invalid in the eyes of law. As observed the provisions of Sec. 271(1B) would not be applicable in the case before us wherein penalty proceedings under Sec. 271(1)(c) had been initiated by the Pr. CIT in his order passed under Sec. 263, therefore, the aforesaid judicial pronouncements would hold the ground in respect of the abovementioned proposition of law. We thus in terms of our aforesaid observations are of the considered view that the Pr. CIT-2, Jalandhar had wrongly assumed jurisdiction and imposed penalty under Sec. 271(1)(c) in the hands of the assessee. We thus in terms of our aforesaid observations conclude that as the imposition of penalty under Sec. 271(1)(c) by the Pr. CIT-2, Jalandhar suffers from a jurisdictional defect, therefore, the same cannot be sustained and is herein quashed.

Issues Involved:

1. Validity of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Classification of lease income as "Income from House Property" vs. "Income from Other Sources".
3. Recording of satisfaction by the Principal Commissioner of Income Tax (Pr. CIT) for imposing penalty.
4. Applicability of Section 271(1B) of the Income Tax Act, 1961.
5. Jurisdictional defect in penalty imposition by Pr. CIT.

Detailed Analysis:

1. Validity of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The assessee challenged the imposition of penalty under Section 271(1)(c) on the grounds that the penalty order was illegal, arbitrary, and void ab initio. The assessee argued that there was no deliberate attempt to conceal income or furnish inaccurate particulars, and that the issue was debatable and the explanation provided was bona fide.

2. Classification of Lease Income:
The assessee contended that the lease income was correctly shown as "Income from House Property" and not "Income from Other Sources". The assessee argued that the change in the head of income does not amount to furnishing inaccurate particulars. The claim was supported by the fact that the property let out included a building, which was used by the tenant for business purposes.

3. Recording of Satisfaction by Pr. CIT:
The assessee argued that the Pr. CIT did not record any satisfaction regarding the furnishing of inaccurate particulars of income in the order passed under Section 263. The absence of such satisfaction was claimed to be a jurisdictional defect, rendering the penalty imposition invalid.

4. Applicability of Section 271(1B):
The assessee contended that Section 271(1B), which provides that the direction for initiation of penalty proceedings in the assessment or reassessment order constitutes satisfaction of the Assessing Officer, does not apply to the Pr. CIT. The definition of "Assessing Officer" under Section 2(7A) does not include the Pr. CIT, and thus, the Pr. CIT's failure to record satisfaction cannot be cured by Section 271(1B).

5. Jurisdictional Defect:
The Tribunal agreed with the assessee's contention that the Pr. CIT had wrongly assumed jurisdiction to impose penalty under Section 271(1)(c) without recording the necessary satisfaction. The Tribunal noted that the Pr. CIT's order initiating penalty proceedings did not contain any satisfaction regarding the furnishing of inaccurate particulars of income.

Conclusion:
The Tribunal concluded that the imposition of penalty by the Pr. CIT under Section 271(1)(c) suffered from a jurisdictional defect due to the failure to record satisfaction. Consequently, the penalty imposed was quashed. The Tribunal's decision for A.Y. 2006-07 was applied mutatis mutandis to the other assessment years (2009-10 to 2014-15), resulting in the allowance of all the appeals filed by the assessee.

Order:
The appeals of the assessee for A.Y. 2006-07 and A.Ys. 2009-10 to 2014-15 were allowed, and the penalty orders under Section 271(1)(c) were quashed. The judgment was pronounced in the open court on 15/01/2019.

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