2019 (3) TMI 80 - AT - Income Tax

Penalty u/s 271(1)(c) - non recording of satisfaction - addition u/s 40A(i)(a) - non specification of charge - Held that -Initiation of penalty proceedings by the AO is valid only if the AO is satisfied in the course of any proceedings, that the Assessee has concealed the particulars of income or furnished inaccurate particulars of income. When this satisfaction for initiation of penalty proceedings u/s 271(1)(c) of IT Act is recorded by the AO in assessment order in respect of certain additions during the assessment proceedings; and not recorded in respect of certain other additions; it acts as a bar against levy of penalty U/s 271(1)(c) in respect of those additions in respect of which such satisfaction was not recorded in the assessment order or during the assessment proceedings. As regards the submission of the Assessee that the AO did not make specific charge against the Assessee in the notice u/s 271(1)(c) whether the penalty proceeding were for concealment of particulars of income or for furnishing of inaccurate particulars of income, this ground need not be adjudicated as we have already cancelled the penalty and this ground/contention is purely academic in view of our decision to cancel the penalty. When there is no valid initiation of penalty proceedings U/s 271(1)(c) of IT Act in respect of certain additions made in the assessment order; it is immaterial if the AO made specific charge against the Assessee whether the penalty proceedings were for concealment of the particulars of income or for furnishing of inaccurate particulars of income.

Summary

Issues Involved:
1. Validity of the penalty order under Section 271(1)(c) of the Income Tax Act.
2. Specificity of the charge in the penalty notice under Section 274 read with Section 271 of the Income Tax Act.
3. Disclosure of details by the Assessee and the initiation of penalty proceedings.
4. Misinterpretation of facts by the CIT(A) regarding the disallowance amount.
5. Penalty on disallowances under Section 40(a)(ia) offered by the Assessee during assessment.
6. Claim for allowance of expenditure in subsequent years and its impact on penalty.
7. Adequacy of opportunity of being heard and principles of natural justice.

Detailed Analysis:

1. Validity of the Penalty Order under Section 271(1)(c):
The Assessee challenged the penalty order dated 23.03.2016 passed by the AO under Section 271(1)(c) of the IT Act, which levied a penalty of ?5,74,603. The penalty was based on disallowances of ?13,97,08,721 and ?15,07,658 under Section 40A(i)(a). The Tribunal noted that the AO did not record satisfaction for initiation of penalty proceedings in respect of these additions in the assessment order dated 30.12.2008. The Tribunal cited various judicial precedents, including CIT vs. Rajan and Co., CIT vs. Vikas Promoters P. Ltd., and CIT vs. Ram Commercial Enterprises Ltd., which emphasize the necessity of the AO’s satisfaction during assessment proceedings for a valid penalty initiation. Consequently, the Tribunal concluded that the penalty proceedings were not validly initiated, leading to the cancellation of the penalty.

2. Specificity of the Charge in the Penalty Notice:
The Assessee argued that the penalty notice under Section 274 did not specify whether the penalty was for furnishing inaccurate particulars of income or for concealment of income. The Tribunal, however, did not adjudicate this issue, deeming it academic since the penalty was already cancelled due to invalid initiation.

3. Disclosure of Details by the Assessee:
The Assessee contended that all details were fully and truly disclosed in the return of income and during assessment proceedings. The Tribunal found that the AO had not recorded satisfaction for initiating penalty proceedings for certain additions, indicating that the Assessee had not concealed particulars of income or furnished inaccurate particulars.

4. Misinterpretation of Facts by the CIT(A):
The Assessee claimed that the CIT(A) misinterpreted the facts by stating that the Assessee did not disallow the amount of ?13,97,08,721 in its return despite the auditor’s quantification. The Tribunal noted that the AO did not initiate penalty proceedings for this disallowance in the assessment order, reinforcing the invalidity of the penalty.

5. Penalty on Disallowances under Section 40(a)(ia):
The Assessee argued that the disallowances under Section 40(a)(ia) were suo-moto offered during assessment and not detected by the AO. The Tribunal reiterated that the AO did not record satisfaction for initiating penalty proceedings for these disallowances, leading to the cancellation of the penalty.

6. Claim for Allowance of Expenditure in Subsequent Years:
The Assessee contended that the claim for allowance of the impugned expenditure was made in subsequent years, and the non-challenge of the assessment order should not lead to penalty. The Tribunal did not specifically address this issue, focusing instead on the invalid initiation of penalty proceedings.

7. Adequacy of Opportunity of Being Heard:
The Assessee argued that the penalty order was passed without adequate opportunity of being heard, violating principles of natural justice. The Tribunal’s decision to cancel the penalty due to invalid initiation rendered this issue moot.

Conclusion:
The Tribunal cancelled the penalty levied under Section 271(1)(c) of the IT Act due to the AO’s failure to record satisfaction for initiation of penalty proceedings in the assessment order. The stay application was dismissed as infructuous. The appeal was partly allowed for statistical purposes.