2005 (4) TMI 266 - AT - Income Tax

Summary

Issues:
1. Initiation of penalty proceedings under section 271(1)(c) without recording satisfaction by the Assessing Officer.
2. Imposition of penalty under section 271(1)(c) on a negative income.

Issue 1:
The appeal challenged the penalty imposed under section 271(1)(c) by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The first contention raised by the assessee was the lack of satisfaction recorded by the AO regarding the concealment of income particulars or furnishing inaccurate particulars. The counsel relied on the decision of the Hon'ble Delhi High Court and the Supreme Court to argue that without such satisfaction, penalty proceedings were not valid. The Tribunal found that the satisfaction required for penalty initiation was not recorded in the assessment order, following the precedent set by the Hon'ble Delhi High Court. As a result, the penalty proceedings were deemed invalid, and the penalty was canceled.

Issue 2:
The second contention raised was regarding the imposition of penalty under section 271(1)(c) on a negative income. The assessee cited decisions of the Hon'ble Punjab & Haryana High Court and the Supreme Court to support their argument against the penalty. The Departmental Representative, however, relied on a recent decision of the Hon'ble Bombay High Court. The Tribunal analyzed the conflicting decisions and highlighted the importance of Expln. 4 to section 271(1)(c) inserted in the statute. Ultimately, the Tribunal decided to follow the view expressed by the Hon'ble Punjab & Haryana High Court, as affirmed by the Supreme Court, holding that in the absence of positive income and tax payable, the imposition of penalty under section 271(1)(c) was not justified.

In conclusion, the Tribunal allowed the appeal of the assessee, canceling the penalty imposed under section 271(1)(c) by the AO. The decision was based on the lack of recorded satisfaction by the AO for penalty initiation and the legal position that penalty cannot be imposed on a negative income without tax payable.