2002 (1) TMI 267 - AT - Income Tax

Summary

Issues:
1. Reduction of penalty under section 271(1)(c) of the IT Act based on additional evidence in contravention of rule 46A.
2. Quashing of penalty for concealment without recording satisfaction by the Assessing Officer.

Detailed Analysis:

Issue 1:
The appeal and cross-objection were against the order of the CIT(A) regarding the penalty under section 271(1)(c) of the IT Act for the assessment year 1989-90. The Department's grievance was that the CIT(A) reduced the penalty by relying on additional evidence in violation of rule 46A. The assessee contended that the penalty should have been quashed entirely due to the lack of satisfaction of concealment by the Assessing Officer before initiating the penalty proceedings.

Issue 2:
The Assessing Officer had initiated penalty proceedings based on discrepancies in the income declared by the assessee. The CIT(A) reduced the penalty amount after considering certain evidence presented by the assessee. The Department argued that the penalty reduction was unjustified as no documentary evidence supporting the loans claimed by the assessee was provided. The assessee's counsel referenced a Delhi High Court decision stating that penalty proceedings require the AO to form an opinion and record satisfaction of concealment in the assessment order. The counsel also cited a previous ITAT decision where the penalty deletion was upheld due to the absence of recorded satisfaction of concealment. The Department did not counter this argument.

Judgment:
The High Court's decision emphasized that the AO must record satisfaction of concealment in the assessment order before initiating penalty proceedings. The absence of such satisfaction is considered a jurisdictional defect that cannot be cured. In this case, the assessment order did not contain the necessary satisfaction for initiating penalty proceedings under section 271. Therefore, the AO's penalty order was deemed legally flawed and was canceled. As a result, the Department's appeal was dismissed, and the assessee's cross-objection was allowed.