2007 (5) TMI 264 - AT - Income Tax

Summary

Issues:
Penalty imposed under section 271(1)(c) of the IT Act for claiming exemption under section 10(23G) - Failure of AO to record satisfaction for initiating penalty proceedings.

Analysis:
The appeal was filed against the order of the learned CIT(A)-IX, New Delhi, confirming the penalty imposed under section 271(1)(c) of the IT Act. The assessee contended that the penalty was not justified as they believed in good faith that approval from CBDT for claiming exemption under section 10(23G) would be received in due course. The AO did not record satisfaction in the assessment order under section 143(3) before initiating penalty proceedings. The assessee cited previous court decisions to support their argument that the penalty was not maintainable in law. The Departmental Representative relied on the orders of the lower authorities.

The assessee, engaged in leasing and providing long-term finance, claimed exemption under section 10(23G) on interest income received from an infrastructure capital company. The AO rejected the claim, leading to penalty proceedings under section 271(1)(c) where a penalty of Rs. 1,36,507 was levied and confirmed by the CIT(A). However, the ITAT Delhi-H held that since the AO did not record satisfaction for initiating penalty proceedings under section 271(1)(c) during the assessment under section 143(3), the penalty could not be sustained. Citing the decision of the jurisdictional High Court and other cases, the ITAT vacated the orders of the lower authorities and allowed the appeal of the assessee. The impugned penalty was deemed not leviable due to the failure of the AO to record satisfaction for initiating penalty proceedings under section 271(1)(c), rendering further discussion unnecessary.

In conclusion, the ITAT Delhi-H allowed the appeal of the assessee, setting aside the penalty imposed under section 271(1)(c) of the IT Act for claiming exemption under section 10(23G) due to the failure of the AO to record satisfaction for initiating penalty proceedings during the assessment. The decision was based on legal precedents and upheld the importance of procedural requirements in penalty imposition.