2019 (12) TMI 871 - HC - Income Tax

Penalty u/s 27(1)(c) - invocation of provisions of Section 263 - Proof of satisfaction of the Assessing Officer/Commissioner (Appeals)/ or Commissioner, recorded in the course of any proceeding under this Act for the levy of penalty - HELD THAT - The provisions of Section 271(1) of the Act call for the satisfaction of the Assessing Officer/Commissioner (Appeals)/ or Commissioner, recorded in the course of any proceeding under this Act for the levy of penalty. Thus, while the Principle Commissioner or Commissioner could well initiate penalty under Section 271(1) if he proposed to effect modifications to the assessment itself, he cannot, in law substitute his satisfaction for that of the Assessing Officers for levying penalty in regard to the modifications to income effected in original assessment. This tantamounts to the Commissioner putting himself the shoes of the Assessing Officer who had passed the original order of assessment in 2016 and is impermissible in law. See Commissioner of Income Tax Vs. C.R.K.Swami 2001 (11) TMI 56 - MADRAS HIGH COURT The order of the Tribunal holding that the addition to income was not justified, having become final, the Tribunal s order holding that the revision of assessment by the Commissioner on the ground that penalty proceedings had not been initiated was unsustainable, in the circumstances, is an order which is required to be upheld.

Summary

Issues:

1. Challenge to order proposing penalty under Section 27(1)(c) of the Income Tax Act, 1961 for assessment year 2009-10.
2. Lack of satisfaction of the Assessing Officer in the original assessment for initiating penalty.
3. Finality of the order in appeal filed by the Income Tax Department.
4. Commissioner's authority to substitute satisfaction for penalty initiation.

Analysis:

The petitioner contested the order proposing penalty under Section 27(1)(c) of the Income Tax Act, 1961 for the assessment year 2009-10. The petitioner argued that the original assessment order did not contain the necessary satisfaction of the Assessing Officer for initiating penalty proceedings under Section 271(1)(c) of the Act. The petitioner further pointed out that an appeal filed by the Income Tax Department against the original assessment order had been dismissed, rendering it final. The impugned show cause notice sought to initiate penalty based on the Assessing Officer's failure to initiate penalty proceedings in the original order. The court emphasized that the satisfaction of the Assessing Officer, Commissioner (Appeals), or Commissioner is a prerequisite for levying penalties under Section 271(1) of the Act during any proceeding under the Act.

The court highlighted that while the Principal Commissioner or Commissioner could initiate penalty under Section 271(1) of the Act if proposing modifications to the assessment, they cannot substitute their satisfaction for that of the Assessing Officer's for levying penalties regarding modifications to income in the original assessment. This act would equate to the Commissioner stepping into the Assessing Officer's shoes who passed the original assessment order, which is impermissible in law. In support of this conclusion, the court referenced a Division Bench order in Commissioner of Income Tax Vs. C.R.K.Swami [254 ITR 158], emphasizing the need to uphold the finality of decisions, especially when additions to income have been deemed unjustified.

Ultimately, the court allowed the writ petition, quashing the impugned show cause notice. Consequently, the connected miscellaneous petition was closed with no order as to costs.