2019 (4) TMI 102 - AT - Income Tax

Penalty u/s 271(1)(c) - addition made in quantum proceedings were set aside and remanded back to the AO by Tribunal - HELD THAT - Since the order by which the quantum was added and the AO came to the conclusion that the assessee had furnished inaccurate particulars of income ceases to exist, on account of being set aside by the Tribunal, the initial cause of levy of penalty does not exist, we have no hesitation to delete the penalty pursuant to order passed by the AO. However it will be open for the AO to initiate the penalty proceedings. In case in the remand proceedings the AO comes to a conclusion that this is a case for imposition of penalty as the assessee has either filed inaccurate particulars of income or had concealed the income, penalty proceedings may be initiated again in accordance with law. - Decided in favour of assessee.

Issues:
1. Levy of penalty u/s 271(1)(c) of the Act.
2. Recording of satisfaction for penalty u/s 271(1)(c).
3. Validity of notice u/s 274.
4. Claim under section 80P(2) as a bonafide claim.
5. Proper recording of satisfaction by the Commissioner of Income Tax.

Analysis:
1. The appeal was filed against the order of the CIT (A) for the assessment year 2010-11, challenging the levy of penalty u/s 271(1)(c) of the Act. The Tribunal previously decided in favor of the assessee in the quantum appeal, remanding jurisdictional issues back to the Assessing Officer for fresh consideration. The Tribunal refrained from adjudicating on the substantive issue of the allowability of the claim for deduction under Section 80P of the Act due to the pending jurisdictional issues. The AO had disallowed the claim based on the concept of mutuality and the nature of members, citing a relevant Supreme Court decision. The Tribunal set aside the quantum addition, leading to the deletion of the penalty as the initial cause for the penalty no longer existed.

2. The issue of recording satisfaction for the penalty u/s 271(1)(c) was raised, arguing that no satisfaction was recorded regarding concealment or furnishing inaccurate particulars of income in the original return under section 143(3) of the Act. It was contended that recording satisfaction in a proceeding under section 147 was insufficient for levying the penalty. The Tribunal held that since the order on which the penalty was based was set aside, the cause for the penalty ceased to exist, leading to the deletion of the penalty by the Tribunal.

3. The validity of the notice u/s 274 was challenged as being vague, questioning the adequacy of the notice for imposing the penalty u/s 271(1)(c). However, the Tribunal did not delve into this issue as the penalty itself was deleted due to the absence of the initial cause for the penalty.

4. The claim under section 80P(2) was asserted to be a bonafide claim by the appellant. The Tribunal did not directly address the bonafide nature of the claim but focused on the jurisdictional issues and the validity of the quantum addition, which ultimately led to the deletion of the penalty.

5. The proper recording of satisfaction by the Commissioner of Income Tax for the penalty u/s 271(1)(c) was emphasized as a requirement for the validity of the penalty. The Tribunal's decision to delete the penalty was primarily based on the fact that the order on which the penalty was based was set aside, eliminating the grounds for the penalty.

In conclusion, the Tribunal allowed the appeal of the assessee, deleting the penalty imposed under section 271(1)(c) of the Act due to the absence of the initial cause for the penalty following the setting aside of the order on which the penalty was based.

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