2017 (2) TMI 219 - AT - Income Tax

Penalty levied under section 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. Accordingly, we hold so. - Decided in favour of assessee.

Issues Involved:
1. Non-recording of proper satisfaction by the Assessing Officer while completing the assessment.
2. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
3. Deletion of penalty by CIT(A) on certain additions.

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 (AO) while completing the assessment. The AO must specify whether the penalty is for "concealment of income" or "furnishing inaccurate particulars of income." The Tribunal noted that the AO failed to record which limb of Section 271(1)(c) was attracted, thus justifying the levy of penalty. The Tribunal referred to the case of Kanhaiyalal D. Jain Vs. ACIT, where it was held that the AO must clearly state the specific charge against the assessee. The Tribunal emphasized that the AO's failure to strike off the irrelevant portion in the notice under Section 274 r.w.s. 271(1)(c) invalidated the penalty proceedings.

2. Levy of Penalty under Section 271(1)(c):
The AO levied a penalty of ?18,81,903/- under Section 271(1)(c) for alleged concealment of income and furnishing inaccurate particulars. The CIT(A) reduced this penalty to ?12,82,190/-. The Tribunal examined whether the AO had applied his mind and recorded satisfaction regarding the specific charge. It was found that the AO had issued a standard proforma notice without specifying the exact charge, which led to an inference of non-application of mind. The Tribunal cited the Karnataka High Court's decision in CIT Vs. Manjunatha Cotton and Ginning Factory, which held that such vague notices offend the principles of natural justice and invalidate the penalty proceedings.

3. Deletion of Penalty by CIT(A) on Certain Additions:
The Revenue's appeal challenged the CIT(A)'s decision to delete the penalty on certain additions, including:
- Interest element of ?2,05,461/-
- Interest over self-occupied house property
- Interest on housing loan amounting to ?11,94,186/-

The Tribunal noted that the AO had not provided a clear basis for these penalties. The CIT(A) had partially upheld and partially deleted the penalties, but the Tribunal found that the AO's failure to specify the charge rendered the penalty proceedings invalid. Consequently, the Tribunal held that the penalty order was invalid and bad in law, making the Revenue's appeal infructuous.

Conclusion:
The Tribunal allowed the assessee's appeal on the grounds of non-recording of proper satisfaction and invalid penalty proceedings. The Tribunal dismissed the Revenue's appeal, reinforcing that the AO must clearly specify the charge under Section 271(1)(c) to uphold the principles of natural justice. The judgment emphasizes the necessity for precise and clear communication of charges in penalty proceedings under the Income Tax Act.

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