2019 (7) TMI 289 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of expenses which was not capitalized to plant and machinery - recording of satisfaction - notice is either for furnishing of inaccurate particulars of income or for concealment of income - HELD THAT - It is a settled law that while levying penalty for concealment, the AO has to record satisfaction and thereafter come to a finding in respect of one of the limbs, which is specified u/s 271(1)(c). The first step is to record satisfaction while completing the assessment as to whether the assessee had concealed its income or furnished inaccurate particulars of income. Thereafter, notice u/s 274 r.w.s 271(1)(c) is to be issued to the assessee. The AO thereafter has to levy penalty u/s 271(1)(c) for non-satisfaction of either of the limbs. While completing the assessment, the AO has to come to a finding as to whether the assessee has concealed its income or furnished inaccurate particulars of income. The Hon ble Bombay High Court in CIT Vs. Shri Samson Perinchery 2017 (1) TMI 1292 - BOMBAY HIGH COURT has held that where initiation of penalty is one limb and the levy of penalty is on other limb, then in the absence of proper show cause notice to the assessee, there is no merit in levy of penalty. In the present case, as noted hereinabove, it is seen that the AO has not recorded any satisfaction in the assessment order but had levied penalty for furnishing of inaccurate particulars of income as well as for concealment of income i.e., for both the limbs. - appeal of the assessee is allowed

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act for furnishing inaccurate particulars of income and concealment of income without proper satisfaction recorded by the Assessing Officer.

Analysis:
The appeal arose from the order of the Commissioner of Income Tax (A) for the assessment year 2012-13, where the assessee's appeal against the penalty order was dismissed. The primary issue was the levy of penalty under section 271(1)(c) of the Act. The Assessing Officer (AO) had added a specific amount to the assessee's income for expenses not capitalized by the assessee to plant and machinery. However, the AO did not record satisfaction in the assessment order regarding whether the penalty was for furnishing inaccurate particulars of income or concealment of income. Subsequently, the penalty order levied a penalty for both limbs without proper show cause notice or recording of proper satisfaction.

The assessee contended that the penalty should be deleted as the AO failed to follow the proper procedure and did not record satisfaction in the assessment order. The AO's action of levying a penalty for both limbs without proper satisfaction was challenged based on the decision of the Hon'ble Bombay High Court in CIT Vs. Samson Perinchery. The High Court's ruling emphasized the necessity of recording satisfaction and issuing a show cause notice before levying a penalty under section 271(1)(c) of the Act.

The Tribunal observed that the AO's failure to record satisfaction in the assessment order and the subsequent levy of penalty for both limbs without proper procedure rendered the penalty order invalid. Citing the precedent set by the Hon'ble Bombay High Court, the Tribunal held that in the absence of proper show cause notice and recording of satisfaction, the penalty could not be sustained. Consequently, the penalty order was set aside, and the assessee's appeal was allowed.

In conclusion, the Tribunal found that the penalty order lacked the necessary satisfaction and procedural requirements, leading to its invalidation. The Tribunal's decision was based on the established legal principles regarding the levy of penalties under section 271(1)(c) of the Income Tax Act.