2019 (1) TMI 1203 - AT - Income Tax

Penalty u/s 271(1)(c) - satisfaction recorded by the AO for initiating of the penalty proceedings - specification of correct limb at the time of initiation as well as at the time of levy of penalty - Held that - It is evident that at the time of initiation of penalty proceedings in the assessment, AO mentioned one limb of clause (c) of section 271(1) of the Act i.e. concealed the particulars of income . But at the time of levying penalty, the Assessing Officer mentioned both the limbs of clause (c) of section 271(1) i.e. furnished inaccurate particulars of income and thereby concealed her income. This manner of recording of satisfaction suggests the existence of ambiguity with reference to applicability of specific limb. AO is under obligation to specify the correct limb at the time of initiation as well as at the time of levy of penalty. In view of the above deliberation on this issue, we are of the opinion that the penalty order is liable to be quashed on this legal issue. - Decided in favour of assessee.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.

Analysis:
The appeal involved the levy of a penalty of ?19,033 under section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer (AO) initiated penalty proceedings based on the assessee's declaration of income resulting from a search action. The AO mentioned one limb of clause (c) of section 271(1) regarding concealing particulars of income during the initiation of penalty proceedings. However, when levying the penalty, the AO referred to both limbs of clause (c) - furnishing inaccurate particulars of income and concealing income. The ambiguity in specifying the correct limb at both stages led the Tribunal to conclude that the penalty order was legally unsustainable. The Tribunal emphasized the importance of the AO clearly identifying the specific limb of clause (c) at both the initiation and levy stages, citing relevant judgments. Consequently, the Tribunal set aside the CIT(A)'s order and directed the deletion of the penalty, allowing the grounds of appeal raised by the assessee.

In the detailed analysis, the Tribunal considered the legal requirement of recording proper satisfaction by the AO for initiating penalty proceedings under section 271(1)(c) of the Act. The Tribunal reviewed the AO's order and the satisfaction recorded, noting discrepancies in the AO's mention of the applicable limb of clause (c) at different stages. Citing precedents like CIT Vs. Shri Samson Perinchery and CIT Vs. Manjunatha Cotton and Ginning Factory, the Tribunal emphasized the necessity for the AO to specify the correct limb clearly throughout the penalty process. The Tribunal found the ambiguity in the AO's approach regarding the specific limb to be a crucial legal issue, leading to the decision to quash the penalty order due to its unsustainability in law.

Ultimately, the Tribunal concluded that the penalty order was liable to be quashed based on the legal issue of ambiguity in specifying the relevant limb of clause (c) of section 271(1) at different stages of the penalty process. By setting aside the CIT(A)'s order and directing the deletion of the penalty, the Tribunal upheld the importance of legal clarity and proper identification of the applicable limb in penalty proceedings under the Income Tax Act, 1961.