2019 (2) TMI 1584 - AT - Income Tax

Penalty imposed u/s 158BFA - absence of search warrant against the assessee - jurisdiction of the AO to complete assessment u/s 158BC - HELD THAT - Promain Ltd. Vs. DCIT (2005 (6) TMI 224 - ITAT DELHI) we hold that in the absence of search warrant against the assessee initiation of search was beyond jurisdiction of the Assessing Officer to complete the assessment under section 158BC We note that the assessment under section 158BC itself has been quashed thus the penalty levied in respect of the income assessed under said assessment order cannot survive. Accordingly we set aside the order of the lower authorities and cancel the penalty levied under section 158BFA(2) of the Act. All the grounds of the appeal are accordingly allowed.

Summary

Issues:
Challenge to penalty imposed under section 158BFA of the Income-tax Act based on undisclosed income and lack of proper satisfaction recorded by assessing officer. Validity of penalty upheld by CIT(A) without fair opportunity of being heard. Jurisdictional issue regarding assessment under section 158BC due to absence of search warrant against the assessee.

Analysis:

1. Penalty Imposed Under Section 158BFA:
The appeal challenged the penalty imposed under section 158BFA of the Income-tax Act amounting to ?23,45,262 based on undisclosed income of ?38,32,128 for the block period from 01/04/1995 to 22/08/2001. The appellant contended that the penalty was unjust and unsustainable, emphasizing the lack of proper satisfaction recorded by the assessing officer during assessment proceedings. The appellant argued that penalty proceedings are separate and independent, and reliance solely on the assessment and appellate orders under quantum proceedings was misconceived. The CIT(A) was criticized for relying on incorrect provisions and judgments not applicable to the case. The grounds of appeal highlighted the arbitrary nature of the penalty and the violation of principles of natural justice in upholding it.

2. Validity of Assessment Under Section 158BC:
The assessment under section 158BC of the Act, completed on 31/07/2003 at undisclosed income of ?38,32,128, was challenged due to jurisdictional issues arising from the absence of a search warrant against the assessee. The Tribunal held that without a search warrant, the initiation of search proceedings and subsequent assessment under section 158BC were beyond the jurisdiction of the Assessing Officer, rendering the assessment void ab initio. The Tribunal's decision in another case supported the appellant's argument that the assessment lacked validity, leading to the cancellation of the penalty imposed under section 158BFA(2) of the Act.

3. Fair Opportunity of Being Heard:
The appellant raised concerns about the lack of a fair and proper opportunity to present their case before the penalty was sustained by the CIT(A). This issue highlighted the importance of adhering to principles of natural justice in penalty proceedings, emphasizing the need for due process and a chance to be heard before penalties are imposed. The failure to provide a fair opportunity for the appellant to present their case was considered a violation of fundamental principles, contributing to the grounds for challenging the penalty.

In conclusion, the Tribunal allowed the appeal, setting aside the penalty levied under section 158BFA(2) of the Income-tax Act based on the jurisdictional issue regarding the assessment under section 158BC and the lack of a search warrant against the assessee. The decision underscored the significance of proper jurisdiction and adherence to procedural fairness in penalty proceedings, ensuring that penalties are imposed lawfully and in accordance with the principles of natural justice.