2014 (6) TMI 16 - HC - Income Tax

Deletion of penalty u/s 271(1)(c) of the Act - Interest on Sugar Development Fund Held that - The absence of a reference to the initiation of proceedings u/s 271(1)(c) is not an inadvertent omission since it is clear that in respect of several other heads, where the AO did consider it appropriate to initiate penalty proceedings, he made an observation to that effect - the AO issued a direction for initiating penalty notice u/s 271(1)(c) as discussed above - The expression as discussed above is material because it refers to those heads in respect of which a specific direction was issued by him for initiating steps u/s 271(1)(c) Relying upon MAK Data P. Limited Vs. Commissioner of Income Tax 2013 (11) TMI 14 - SUPREME COURT - the AO has to satisfy himself whether penalty proceedings should be initiated or not during the course of assessment proceedings and he is not required to record his satisfaction in a particular manner or reduce it into writing - there is no direction whatsoever by the AO in respect of the specific head of interest on the SDF loan, on which the penalty was deleted by the Tribunal - The omission in the case of the SDF loan stands in sharp contrast to those items where the AO has specifically directed the initiation of penalty proceedings u/s 271(1)(c) thus, the Tribunal was justified in deleting the penalty u/s 271(1)(c) in respect of the SDF loan no substantial question of law arises for consideration Decided against Revenue.

Summary

Issues:
1. Interpretation of Section 271(1)(c) of the Income Tax Act, 1961 regarding the initiation of penalty proceedings.
2. Consideration of Explanation 7(1B) to section 271 in penalty proceedings.
3. Alleged interpretation of new conditions in section 271(1)(c) not intended by the legislature.

Analysis:
1. The appeal before the Allahabad High Court arose from an order by the Income Tax Appellate Tribunal deleting the penalty under section 271(1)(c) of Rs. 77,89,965/- related to interest on the Sugar Development Fund for the assessment year 2000-01. The Revenue raised questions regarding the interpretation of section 271(1)(c) and the requirement of recording satisfaction before initiating penalties. The Assessing Officer had specifically directed penalties under various heads except for interest on the SDF loan. The Tribunal observed that there was no recorded satisfaction for penalty initiation related to the SDF loan, leading to the deletion of the penalty.

2. The submission by the Revenue relied on sub-section (1B) of section 271, which deems an order of assessment as satisfaction for penalty initiation under clause (c) if specific conditions are met. The deeming fiction requires the addition or disallowance of an amount in the assessment order along with a direction for penalty proceedings under clause (c) of section 271(1). In this case, the absence of a specific direction for the SDF loan interest penalty led to the Tribunal's decision to delete the penalty.

3. The High Court analyzed the Assessing Officer's order under section 143(3) and noted the specific directions for penalty initiation under various heads except for the interest on the SDF loan. The court emphasized that the Assessing Officer's satisfaction for penalty initiation need not be recorded in a specific manner but must be evident from the assessment order. The absence of any direction for penalty proceedings regarding the SDF loan interest, despite specific directions for other items, justified the Tribunal's decision to delete the penalty. The court dismissed the appeal, stating that no substantial question of law was raised, and no costs were awarded.

In conclusion, the judgment focused on the interpretation of section 271(1)(c) and the application of sub-section (1B) in penalty proceedings, highlighting the importance of specific directions for penalty initiation in assessment orders to uphold the validity of penalties imposed.