2017 (1) TMI 313 - AT - Income Tax

Penalty under section 271(1)(c) - income declared by the appellant in the return of income filed as per statement u/s 132(4) - Held that - Assessing Officer in the first year i.e. assessment year 2005-06 has only given a direction and has not even mentioned as to which link of section 271(1)(c) of the Act is applicable in the facts of the case. In respect of other assessment years, the Assessing Officer has recorded satisfaction for initiating penalty proceedings on account of concealment of income and furnishing of inaccurate particulars of income. Under the provisions of section 271(1)(c) of the Act, penalty for concealment is leviable where the assessee has fulfilled either conditions i.e. concealment of income or furnishing of inaccurate particulars of income. The Assessing Officer while initiating penalty proceedings has to be satisfied as to under which limb, the penalty is leviable and consequent thereto, issue notice in this regard. However, in the facts of the present case and as pointed out hereinabove, the Assessing Officer has failed to record satisfaction correctly and consequently, we hold that initiation of penalty proceedings against the assessee are not valid for non-recording of satisfaction by the Assessing Officer while completing assessment proceedings. Further, the Assessing Officer has failed to strike off either of the limbs of section 271(1)(c) of the Act, which are not satisfied by the assessee and consequently, notice issued under section 274 r.w.s. 271(1)(c) of the Act is bad in law and order levying penalty for concealment thereafter, is infructuous. Accordingly, we hold so.- Decided in favour of assessee

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the penalty proceedings due to non-recording of satisfaction by the Assessing Officer.
3. Ambiguity in the notice issued under section 274 r.w.s. 271(1)(c) of the Act.
4. Distinction between concealment of income and furnishing inaccurate particulars of income.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The core issue was whether the penalty levied under section 271(1)(c) of the Act was justified. The assessee had declared additional income pursuant to a search operation and included this in the returns filed. The Assessing Officer (AO) initiated penalty proceedings, believing that the additional income was declared solely due to the search. The assessee contended that the AO did not record satisfaction as to whether the income was concealed or inaccurately furnished, thus challenging the validity of the penalty.

2. Validity of the Penalty Proceedings Due to Non-Recording of Satisfaction by the Assessing Officer:
The Tribunal examined whether the AO had recorded the requisite satisfaction during the assessment proceedings. It was emphasized that the AO must be satisfied about either concealment of income or furnishing inaccurate particulars of income before initiating penalty proceedings. The Tribunal referred to the case of Kanhaiyalal D. Jain Vs. ACIT, which established that satisfaction must be explicitly recorded and the notice must specify the exact charge. The Tribunal found that in the present case, the AO had failed to record clear satisfaction, thus invalidating the penalty proceedings.

3. Ambiguity in the Notice Issued Under Section 274 r.w.s. 271(1)(c) of the Act:
The Tribunal scrutinized the notices issued under section 274 r.w.s. 271(1)(c) of the Act. It was noted that the notices did not clearly specify whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. The Tribunal cited the Karnataka High Court's decision in CIT Vs. SSA’s Emerald Meadows, which held that such ambiguity invalidates the notice and subsequent penalty proceedings. The Tribunal concluded that the notices in the present case were ambiguous and thus invalid.

4. Distinction Between Concealment of Income and Furnishing Inaccurate Particulars of Income:
The Tribunal reiterated the legal distinction between concealment of income and furnishing inaccurate particulars of income, as established by the Supreme Court in T. Ashok Pai Vs. CIT. It was emphasized that these are separate charges, and the AO must clearly state which charge is being levied. The Tribunal found that the AO had not made this distinction clear in the assessment order or the penalty notices, leading to a lack of clarity and prejudice against the assessee.

Conclusion:
The Tribunal allowed the appeals filed by the assessee, holding that the penalty proceedings were invalid due to the AO’s failure to record clear satisfaction and the ambiguity in the notices issued. The Tribunal emphasized the importance of clear and specific charges in penalty proceedings to ensure fairness and adherence to principles of natural justice. The penalty orders were quashed, and the appeals were decided in favor of the assessee.