2007 (8) TMI 389 - AT - Income Tax

Summary

Issues Involved:
1. Legality of penalty proceedings initiated u/s 271(1)(c) without recording satisfaction.
2. Justification for the imposition of penalty u/s 271(1)(c) on disallowance of business loss and depreciation.

Summary:

1. Legality of Penalty Proceedings Initiated u/s 271(1)(c) Without Recording Satisfaction:

The assessee argued that the penalty proceedings were initiated without recording any satisfaction during the assessment proceedings, making the levy of penalty u/s 271(1)(c) unsustainable. The Tribunal admitted this additional ground, noting it was a legal issue that did not require further fact-finding. The Tribunal found that the Assessing Officer (AO) did not record any satisfaction for initiating penalty proceedings in the assessment order. The Tribunal referenced the decision in *Anand Granites International Pvt. Ltd. v. Deputy CIT* and the Supreme Court's ruling in *Dilip N. Shroff v. Joint CIT*, which emphasized that the AO must record satisfaction for initiating penalty proceedings. Consequently, the Tribunal held that the penalty proceedings were invalid due to the lack of recorded satisfaction.

2. Justification for the Imposition of Penalty u/s 271(1)(c) on Disallowance of Business Loss and Depreciation:

The AO disallowed the business loss and depreciation claimed by the assessee, stating that no business was conducted during the year, and the returns were filed belatedly, making them non est. The AO imposed a penalty of Rs. 1,72,15,033 u/s 271(1)(c) for making a wrong claim. The Commissioner of Income-tax (Appeals) upheld this penalty. However, the Tribunal found that the burden of proof in penalty proceedings is on the Department to establish that the assessee had concealed income. The Tribunal noted that there was no material evidence to show that the expenditure claimed was personal or capital in nature or that the assets on which depreciation was claimed were not used for business purposes. The Tribunal cited the decision in *P.M. Telelinks Ltd. v. Deputy CIT*, which held that mere disallowance of depreciation does not warrant penalty u/s 271(1)(c). The Tribunal concluded that the Department failed to prove concealment of income or furnishing of inaccurate particulars by the assessee. Therefore, the penalty imposed was not justified.

Conclusion:

The Tribunal canceled the penalty of Rs. 1,72,15,033 imposed by the AO u/s 271(1)(c) and allowed the appeal in favor of the assessee, stating that there was no concealment of income or furnishing of inaccurate particulars.

Order Pronounced on August 24, 2007.