2007 (8) TMI 390 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of penalty proceedings u/s 271(1)(c) without recording satisfaction.
2. Validity of penalty on disallowance of business loss and depreciation.
3. Impact of belated filing of returns on penalty imposition.

Summary:

1. Legitimacy of Penalty Proceedings u/s 271(1)(c) without Recording Satisfaction:
The Tribunal found that the Assessing Officer (AO) did not record any satisfaction for initiating penalty proceedings u/s 271(1)(c) during the assessment. The AO's treatment of the return as non est does not equate to recording satisfaction. The Tribunal cited the Supreme Court's decision in *Dilip N. Shroff v. Jt. CIT* [2007] 291 ITR 519, emphasizing that the AO must explicitly record satisfaction for initiating penalty proceedings. Consequently, the penalty imposed without such satisfaction is unsustainable.

2. Validity of Penalty on Disallowance of Business Loss and Depreciation:
The AO disallowed the business loss and depreciation claimed by the assessee, stating no business was conducted during the year. The Tribunal noted that the burden of proof in penalty proceedings lies with the Department to establish concealment of income. The Tribunal referenced *Anantharam Veerasingaiah & Co. v. CIT* [1980] Supp. SCC 13, highlighting that the penalty order is quasi-criminal, requiring fresh consideration. The Tribunal found no evidence that the claimed expenditures were personal or capital in nature or that the assets were not used for business purposes. Thus, the penalty for disallowance of business loss and depreciation was deemed unjustified.

3. Impact of Belated Filing of Returns on Penalty Imposition:
The AO treated the returns filed beyond the time allowed u/s 139(4) as non est and imposed a penalty. The Tribunal held that treating returns as non est means they are no returns in the eye of law, and thus, no penalty can be levied. The Tribunal cited *ITO v. Bombaywala Readymade Stores* [2004] 91 ITD 225 (Ahd.) (TM), where it was held that no penalty u/s 271(1)(c) can be imposed if no return is submitted. The Tribunal also referenced *Virtual Soft Systems Ltd v. CIT* [2007] 289 ITR 83 (SC), which held that a return filed declaring loss and assessed at a reduced loss does not warrant penalty.

Conclusion:
The Tribunal concluded that there was no concealment on the part of the assessee and the penalty of Rs. 1,72,15,033 imposed by the AO u/s 271(1)(c) was unjustified. The appeal was allowed, and the penalty was canceled in toto.