2005 (2) TMI 432 - AT - Income Tax

Summary

Issues Involved:
1. Sustaining the penalty of Rs. 2,20,061 under Section 271(1)(c) of the IT Act, 1961.
2. Imposition of penalty without allowing proper opportunity.
3. Jurisdiction to impose penalty under Section 271(1)(c) without recording proper satisfaction.
4. Authority to levy penalty as per the law existing at the time of filing the original IT return.

Detailed Analysis:

1. Sustaining the Penalty under Section 271(1)(c):
The main contention in the appeal was whether the CIT(A) was justified in sustaining the penalty of Rs. 2,20,061 imposed by the AO under Section 271(1)(c) of the IT Act, 1961. The facts revealed that the assessee had filed a return declaring a loss, which was accepted initially but later reopened under Section 147 due to unaccounted investments in building construction and machinery. Despite several opportunities, the assessee failed to provide satisfactory explanations or evidence, leading to the AO's imposition of the penalty for furnishing inaccurate particulars of income.

2. Imposition of Penalty without Allowing Proper Opportunity:
The assessee argued that the penalty was imposed without proper opportunity being given. However, the records showed that the AO made multiple attempts to serve notice, including contacting the assessee's counsel and serving notice by affixture when normal means failed. The Tribunal found that the AO had made all reasonable efforts to notify the assessee, and the claim of lack of opportunity was without merit.

3. Jurisdiction to Impose Penalty without Recording Proper Satisfaction:
The assessee contended that the AO had not recorded proper satisfaction for initiating penalty proceedings, which is a prerequisite for imposing a penalty under Section 271(1)(c). The Tribunal noted that the AO had merely stated that penalty proceedings were initiated without specifying whether it was for concealing particulars of income or furnishing inaccurate particulars. Citing judgments from higher courts, the Tribunal held that the lack of specific satisfaction rendered the penalty proceedings without jurisdiction and thus invalid.

4. Authority to Levy Penalty as per the Law Existing at the Time of Filing the Original IT Return:
The assessee argued that the penalty should be levied according to the law as it stood when the original return was filed, not when the return was filed in response to a notice under Section 148. The Tribunal agreed, referencing Supreme Court and High Court judgments that supported this view. According to the law in effect at the time of the original return, the authority to levy such penalties vested with the IAC (now Dy. CIT), not the Asstt. CIT who had imposed the penalty. Therefore, the penalty order was without jurisdiction and void ab initio.

Conclusion:
The Tribunal concluded that the CIT(A) was not justified in sustaining the penalty. The penalty order was quashed on the grounds of lack of proper jurisdiction and failure to record specific satisfaction. The appeal was allowed, and the impugned penalty was canceled.