2023 (4) TMI 285 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - Defective notice u/s 274 - initiation of penalty is one limb and the levy of penalty is on other limb - HELD THAT - In the penalty order passed AO has levied the penalty for concealment of income. It is a settled law that while levying penalty the AO has to record 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 concealed the income or furnished inaccurate particulars of income. Notice u/s 274 read with Section 271(l)(c) of the Act is to be issued to the assessee. 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 the income or furnished inaccurate particulars of income. As in CIT vs. 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. 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 of AO. Appeal of assessee allowed.

Summary

Issues:
The issues involved in the judgment are the imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 without proper notice to the assessee and the lack of specification in the assessment order regarding whether the penalty is for concealment of income or furnishing inaccurate particulars of income.

Imposition of Penalty without Proper Notice:
The appeal was filed by the assessee against the penalty order passed by the Assessing Officer (AO) under section 271(1)(c) of the Act. The AO made an addition of Rs.15,00,000/- in the assessment order, and subsequently levied a penalty of Rs.3,13,120/-. The assessee contended that the penalty was imposed without proper notice. The Commissioner of Income Tax (Appeals) dismissed the appeal, leading the assessee to file an appeal before the ITAT Delhi. The ITAT noted that there was no representation from the side of the assessee during the proceedings, and the notices issued were returned undelivered. Upon examination, it was found that the AO had not specified whether the penalty was for concealment of income or furnishing inaccurate particulars of income in the assessment order. The ITAT held that the basic condition for the levy of penalty had not been fulfilled, and the penalty order lacked proper jurisdiction. Citing a decision of the Hon'ble Bombay High Court, the ITAT directed the deletion of the penalty, thereby allowing the ground raised by the assessee.

Lack of Specification in Assessment Order:
The second issue raised by the assessee was regarding the lack of specification in the assessment order regarding the nature of the penalty imposed. The ITAT observed that the AO had not recorded satisfaction as to whether it was a case of concealment of income or furnishing inaccurate particulars of income in the assessment order. While the penalty order mentioned concealment of income, the ITAT emphasized that proper satisfaction must be recorded by the AO before levying a penalty under section 271(1)(c) of the Act. Referring to the case law, the ITAT highlighted the importance of issuing a show cause notice specifying the charge to the assessee. In the absence of such notice and proper satisfaction recorded in the assessment, the ITAT concluded that the conditions for the levy of penalty were not met in the present case. Consequently, the ITAT allowed the appeal of the assessee and directed the deletion of the penalty amount.