2024 (12) TMI 493 - AT - Income Tax

Penalty u/s 271(1)(c) - non recording proper satisfaction - HELD THAT - The penalty is not automatically levied on the basis of the finding in the assessment order. The assessee had conceded the compensation to be included as income from other sources, however, when examined in view of the judicial pronouncements in this regard the same is not liable to be included in the total income of the assessee as being compensatory and capital in nature. Thus, no penalty is leviable on the amount allowed in favour of the assessee. Initiation of penalty u/s 271(1)(c) in respect of Income from Capital Gain and Income from Other Sources with a motive to avoid payment of taxes and defraud the exchequer - Hon'ble Calcutta High Court in case of Principal Commissioner of Income-tax v. Thakur Prasad Sao Sons (P.) Ltd. 2024 (5) TMI 787 - CALCUTTA HIGH COURT have held when the AO had recorded in the assessment order the particulars of concealed income/undisclosed income of the assessee and on that basis initiated penalty proceeding under section 271(1)(c) then consequential notice u/s 274 issued by AO to the assessee to afford him opportunity of hearing, was specifically a notice for penalty for concealment of particulars of income/undisclosed income. Such a notice complied with the principles of natural justice and was a valid notice under section 274. Hence, ground no. 2 of the appeal is hereby dismissed. Penalty on the returned income - As in view of the finding in the case of Meeta Gutgutia 2016 (5) TMI 339 - ITAT DELHI in which reliance has been placed on the decision of Varkey Chacko 1993 (8) TMI 1 - SUPREME COURT and M/S S.A.S. Pharmaceuticals 2011 (4) TMI 888 - DELHI HIGH COURT and also in the case of Armoury International 2019 (2) TMI 1056 - ITAT MUMBAI if the compensation amount is excluded, as the same was capital receipt in nature and therefore not liable to be added to the income, there remains no difference between the income returned in response to the notice u/s 148 of the Act and the income assessed u/s 143(3) read with section 147 of the Act. Hence, no penalty was imposable u/s 271(1)(c) of the Act. We accordingly, direct the Ld. AO to delete the penalty levied. Hence, ground nos.1, 2 and 5 of the appeal are allowed.

Issues Involved:

1. Jurisdiction and legality of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Satisfaction recording by the Assessing Officer for imposing penalty.
3. Reasonable cause for non-filing of the return under Section 139(1).
4. Inclusion of rent paid by the developer as taxable income.
5. Automatic imposition of penalty based on assessment findings.

Issue-wise Analysis:

1. Jurisdiction and Legality of Penalty:

The assessee contested the imposition of a penalty of Rs. 4,56,362 under Section 271(1)(c) of the Income Tax Act, 1961, arguing it was without jurisdiction, illegal, and invalid. The Tribunal initially adjudicated only on the ground related to the rent paid by the developer but failed to address other grounds, leading to a recall of the order for a comprehensive review. The Tribunal found that the penalty imposed by the Assessing Officer (AO) was based on the incorrect assumption that the grounds were interconnected and consequential to the adjudicated ground. The Tribunal concluded that the penalty was not justified as the issues required separate adjudication.

2. Satisfaction Recording by the Assessing Officer:

The assessee argued that the AO failed to record proper satisfaction for levying the penalty. The AO's penalty order mentioned that the assessee did not file a return under Section 139 and failed to disclose true income, leading to the initiation of penalty proceedings for concealment. However, the Tribunal noted that the satisfaction recorded was not adequate, as the penalty cannot be automatically imposed based on the assessment order findings alone. The Tribunal emphasized that the penalty requires a definite finding of concealment, which was not present in this case.

3. Reasonable Cause for Non-filing of Return:

The assessee claimed reasonable cause for not filing the return under Section 139(1), citing medical expenses for the mother as a reason. The AO dismissed this claim, noting inconsistencies in the assessee's statements and lack of supporting documentation. The Tribunal observed that while the assessee's explanation was not fully substantiated, the penalty could not be imposed solely based on the failure to file a return, especially when the income was later disclosed in response to a notice under Section 148.

4. Inclusion of Rent Paid by Developer as Taxable Income:

The assessee argued that the rent of Rs. 79,500 paid by the developer for alternate accommodation should not be taxed as income. The Tribunal referred to judicial precedents where such compensation was considered a capital receipt, not liable to tax. It concluded that the rent paid by the developer was compensatory and capital in nature, thus not taxable. Consequently, no penalty was leviable on this amount, and the ground was decided in favor of the assessee.

5. Automatic Imposition of Penalty Based on Assessment Findings:

The Tribunal reiterated that penalty proceedings are distinct from assessment proceedings, and findings in the latter are not binding for the former. The penalty cannot be automatically imposed without establishing concealment or furnishing of inaccurate particulars. The Tribunal cited various judicial pronouncements supporting the view that the penalty under Section 271(1)(c) requires a clear finding of concealment, which was absent in this case.

Conclusion:

The Tribunal concluded that the penalty levied was not justified, as the AO did not establish concealment or furnish inaccurate particulars. The appeal was partly allowed, and the penalty of Rs. 4,56,362 was deleted. The Tribunal emphasized the need for distinct findings in penalty proceedings, separate from assessment findings, and upheld the principles of natural justice.

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