2014 (5) TMI 776 - HC - Income Tax

Requirement to serve notice for initiating proceedings u/s 271(1)(c) of the Act Effect of amendment w.e.f. 1.4.1989 - Held that - The Tribunal was of the view that the AO had not recorded any satisfaction while initiating the penalty proceedings and thus he had no jurisdiction to levy penalty u/s 271(1) (c) of the Act - Finance Act, 2008 effective retrospectively from 1.4.1989 had inserted sub section 1B in Section 271 of the Act Relying upon Commissioner of Income Tax v. Pearey Lal and Sons (EP) Limited 2008 (9) TMI 142 - PUNJAB AND HARYANA HIGH COURT - the view taken by the Tribunal that mere making of mention that penalty proceedings were being separately initiated in the order of assessment did not justify initiation of penalty proceedings, cannot be upheld - the initiation of penalty proceedings are held to be valid Decided in favour of Revenue. Validity of deletion of penalty by Tribunal Held that - The AO had primarily levied penalty by treating the amount as cessation of liability whereas the CIT(A) did not agree with it but held that the account of BPCL showed less balance - there was inaccurate furnishing of particulars of income - The amount was shown payable to BPCL as on 31.3.2000 and 31.3.2001 - it would not amount to cessation of liability - The assessee had pleaded that the account of BPCL could not be reconciled as they were not supplying copy of the account - It was only after getting a copy of account from BPCL that the discrepancy in the account was added as income - It was claimed that there was no intentional understatement of income or deliberate furnishing of inaccurate particulars on the part of the assessee - The plea of the assessee is plausible and it cannot be held to be without any substance thus, the levy of penalty by the AO and CIT(A) was not justified - Decided against Revenue.

Summary

Issues:
1. Validity of penalty proceedings initiation under section 271(1)(c) of the Income Tax Act.
2. Justification of penalty levy under section 271(1)(c) based on inaccurate particulars of income.

Analysis:

Issue 1: Validity of Penalty Proceedings Initiation
The appeal was filed by the revenue challenging the order of the Income Tax Appellate Tribunal regarding the initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act for the assessment year 2001-02. The Tribunal had observed that the Assessing Officer had not recorded satisfaction while initiating the penalty proceedings, questioning the jurisdiction to levy the penalty. The Finance Act, 2008 inserted sub-section 1B in Section 271, stating that the order of assessment or reassessment containing a direction for penalty proceedings shall be deemed as satisfaction for initiating penalty proceedings. Referring to a previous case, the court held that the absence of recorded satisfaction during assessment is a substantive issue and cannot be inferred merely from a mention of separate initiation of penalty proceedings. Therefore, the court ruled in favor of the revenue, declaring the initiation of penalty proceedings as valid.

Issue 2: Justification of Penalty Levy
Regarding the justification of the penalty levy under section 271(1)(c) based on inaccurate particulars of income, the Assessing Officer imposed a penalty due to the difference in the account of Bharat Petroleum Corporation Limited (BPCL), considering it as cessation of liability. However, the CIT(A) disagreed with this characterization but upheld the penalty for inaccurate particulars of income due to the discrepancy in the BPCL account. The Tribunal canceled the penalty, noting that the discrepancy arose from the BPCL account not being reconciled as they did not provide a copy. The assessee argued that there was no intentional understatement of income or deliberate furnishing of inaccurate particulars. The court found the plea of the assessee plausible, concluding that the penalty levy by the Assessing Officer and CIT(A) was not justified. Therefore, the appeal was disposed of accordingly.