2020 (8) TMI 515 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - addition on account of bogus purchases - Defective notice - AO with respect to addition on account of bogus purchases has recorded that assessee had furnished inaccurate particulars of income b ut while passing the penalty order u/s 271(1)(c) held that assessee has concealed the particulars of income and made itself liable for penalty - AO recorded that assessee had furnished inaccurate particulars of income - HELD THAT - It is a settled law that while levying penalty, the AO has to record clear satisfaction and thereafter come to a finding in respect of one of the limbs, which is specified under section 271(1)(c). The first step is to record satisfaction while completing the assessment as to whether the assessee had furnished inaccurate particulars of income or concealed his income. Notice u/s 274 read with Section 271(1)(c) of the Act is to be issued to the assessee. AO thereafter has to levy penalty under Section 271(1)(c) of the Act for non-satisfaction of either of the limbs. While completing the assessment, the Assessing Officer has to come to a finding as to whether the assessee has concealed its income or furnished inaccurate particulars of income Considering the facts of the present case in the light of the decision of Samson Perinchery 2017 (1) TMI 1292 - BOMBAY HIGH COURT wherein held 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. - thus we are of the view that in the present case, the basic condition for levy of penalty has not been fulfilled and that the penalty order suffers from non-exercising of jurisdiction power and therefore penalty order cannot be upheld. We accordingly set aside the penalty order passed by AO. - Decided in favour of assessee.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act based on alleged inaccurate particulars of income and concealment of income.

Analysis:
The appeal before the Appellate Tribunal ITAT Pune stemmed from an order by the Commissioner of Income Tax (A) for the assessment year 2011-12. The case involved a firm engaged in civil construction, where the assessment was re-opened under section 147 of the Act, leading to an addition on account of bogus purchases and subsequent penalty imposition under section 271(1)(c) of the Act. The appellant contested the penalty order on various grounds, primarily challenging the initiation and basis of the penalty proceedings.

The appellant argued that the penalty was unjustified as the specific charge for initiating penalty proceedings was not clearly specified in the notice under section 274 or the assessment order. The appellant also contended that the purchases in question were supported by valid documentation and were offered to tax to avoid litigation, not as an admission of wrongdoing. Additionally, the appellant highlighted the lack of opportunity for cross-examination of the alleged supplier and the reliance on documentary evidence that was not disputed by the Assessing Officer.

During the proceedings, the Assessing Officer was found to have levied the penalty for both concealing income and furnishing inaccurate particulars of income, without clear satisfaction recorded on either aspect during the assessment. The Tribunal emphasized the requirement for the Assessing Officer to establish satisfaction regarding either concealment or inaccurate particulars of income before initiating penalty proceedings. Citing a precedent by the Bombay High Court, it was concluded that in the absence of a proper show cause notice to the assessee specifying the grounds for penalty, the levy of penalty under section 271(1)(c) cannot be upheld.

Ultimately, the Tribunal set aside the penalty order, ruling in favor of the appellant and allowing the appeal. The decision was made on the basis that the basic condition for the levy of penalty had not been met, rendering the penalty order invalid due to a lack of jurisdiction power exercised by the Assessing Officer.

In conclusion, the Tribunal's decision highlighted the importance of clear satisfaction recorded by the Assessing Officer regarding the grounds for penalty under section 271(1)(c) of the Income Tax Act, emphasizing the necessity for proper show cause notice to the assessee before imposing penalties based on alleged concealment or inaccurate particulars of income.