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2017 (2) TMI 169 - AT - Income TaxPenalty u/s. 271(1)(c) - non-recording of proper satisfaction by the Assessing Officer while completing assessment - Held that - Assessing Officer while completing assessment and making disallowance on each account had stated that penalty under section 271(1)(c) of the Act needs to be initiated and the same was so initiated by issue of notice under section 274 r.w.s. 271(1)(c) of the Act. However, the Assessing Officer has failed to give satisfaction as to which limb of the said section has not been complied with by the assessee. In the absence of the same, proceedings initiated in the case by issue of notice in which inappropriate portion was not struck off, are vitiated. Consequently, penalty order passed in the case is invalid and bad in law. - Decided in favour of assessee.
Issues Involved:
1. Non-recording of proper satisfaction by the Assessing Officer for initiating penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961. 2. Validity of the notice issued under section 274 r.w.s. 271(1)(c) of the Act. 3. Merits of the penalty levied under section 271(1)(c) of the Act. Issue-wise Detailed Analysis: 1. Non-recording of Proper Satisfaction by the Assessing Officer: The primary issue raised by the assessee was the non-recording of proper satisfaction by the Assessing Officer while completing the assessment. The assessment order mentioned that penalty proceedings needed to be initiated under section 271(1)(c) of the Act, but it did not specify which limb of the section (concealment of income or furnishing inaccurate particulars of income) was applicable. The Tribunal noted that the requirement under section 271(1)(c) is for the Assessing Officer to record satisfaction during the assessment proceedings that the assessee has either concealed particulars of income or furnished inaccurate particulars of income. The Tribunal referred to the Pune Bench decisions in Kanhaiyalal D. Jain Vs. ACIT and Nandkishor Tulsidas Katore Vs. ACIT, which emphasized the necessity of clear satisfaction by the Assessing Officer regarding the specific charge against the assessee. The Tribunal found that the satisfaction recorded in the present case was insufficient and did not meet the legal requirements. 2. Validity of the Notice Issued Under Section 274 r.w.s. 271(1)(c) of the Act: The second issue was the validity of the notice issued under section 274 r.w.s. 271(1)(c) of the Act. The notice issued to the assessee did not strike off the inapplicable portion, leading to ambiguity about the exact charge against the assessee. The Tribunal referred to the Karnataka High Court's decision in CIT Vs. Manjunatha Cotton and Ginning Factory, which held that the notice must clearly specify whether the penalty is for concealment of income or furnishing inaccurate particulars of income. The Tribunal found that the notice in the present case was vague and ambiguous, thereby prejudicing the assessee's right to a fair hearing. The Tribunal held that such a notice is invalid and the subsequent penalty proceedings based on it are vitiated. 3. Merits of the Penalty Levied Under Section 271(1)(c) of the Act: On the merits of the penalty, the Tribunal noted that the assessee had offered additional income on account of on-money on the sale of plots, which was accepted by the Assessing Officer. However, the CIT(A) issued an enhancement notice and concluded that the amounts were loans received, not on-money from sales. This change in the basis for the addition indicated a change in opinion, which affected the grounds for penalty. The Tribunal held that the penalty could not be sustained on the revised grounds and found no merit in the penalty levied at 150%. Consequently, the Tribunal allowed the assessee's appeal on merits as well. Conclusion: The Tribunal allowed the assessee's appeal, holding that the penalty proceedings were invalid due to the non-recording of proper satisfaction by the Assessing Officer and the issuance of a vague and ambiguous notice under section 274 r.w.s. 271(1)(c) of the Act. The Tribunal also found no merit in the penalty on the revised grounds presented by the CIT(A). The appeal was allowed, and the penalty order was quashed.
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