2014 (6) TMI 50 - HC - Income Tax

Levy of penalty u/s 271(1)(c) after remand order - originally no penalty proceedings were initiated - Satisfaction not recorded by the CIT Held that - Tribunal was of the view that when the revisional order was made on 29.06.2010, the Commissioner did not record any satisfaction even though he was empowered to do so u/s 271(1)(c), as amended -This aspect assumes importance even though the Revenue endeavoured to urge that the increased amount brought to tax by virtue of the revisional power implied that penalty could also be imposed while giving effect to the revisional order the contention cannot be accepted because the basic idea of clothing the Commissioner with the primary powers to initiate penalty u/s 271 (1) was precisely to cater to such situations - the initiation of penalty proceedings is based upon the satisfaction of one who is empowered to do so - it was open to the Commissioner to initiate the proceedings in exercise of its powers u/s 271 or even indicate that such power was available to the AO, while working out the revision effect - Not having done so, the AO could not have in the first instance, after remand, without any direction or indication in the revisional order initiate the penalty proceedings as such no substantial question of law arises for consideration Decided against Revenue.

Summary

Issues:
1. Challenge to imposition of penalty by Revenue.
2. Interpretation of Section 271(1)(c) of the Income Tax Act.
3. Authority empowered to initiate penalty proceedings.
4. Bona fide belief of the assessee regarding short term capital gain.

Analysis:
1. The Revenue challenged the order of the ITAT setting aside the penalty imposed. The original assessment for AY 2006-07 was revised by the Commissioner under Section 263 of the Income Tax Act, seeking to tax a sum as short term capital gain. The subsequent penalty imposed was challenged by the assessee on the grounds that the AO could not initiate penalty proceedings without the satisfaction of the Commissioner as required by Section 271(1)(c). The CIT(A) and the Tribunal held that the assessee was justified in its claim based on prevailing rulings of coordinate Benches.

2. The Court considered the amendments to Section 271(1)(c) introduced by the Finance Act of 2002, empowering the Commissioner to initiate penalty proceedings. The Court noted that the Commissioner did not record any satisfaction when making the revisional order, which is crucial for initiating penalty proceedings. The Court emphasized that the power to initiate penalty proceedings is based on the satisfaction of the authority empowered to do so, and in this case, the AO could not have initiated penalty proceedings without direction or indication in the revisional order.

3. Regarding the authority empowered to initiate penalty proceedings, the Court highlighted that the Commissioner, exercising revisional powers, should have indicated the availability of such power to the AO while working out the revision effect. Since this was not done in the present case, the AO could not independently initiate penalty proceedings after remand without specific direction in the revisional order.

4. The Court considered the merits of the case and upheld the findings of the CIT(A) and the ITAT that the assessee had a bona fide belief that the amount in question could not be treated as short term capital gain. The Court referred to the decision in CIT v. B.C. Srinivasa Setty to support the assessee's belief. Ultimately, the Court held that there was no substantial question of law, and the appeal was dismissed.