2020 (4) TMI 397 - AT - Income Tax

Penalty levied u/s 271(1)(c) - Credit capital account with the narration Gift received - HELD THAT - AO has not recorded any satisfaction as to which limb of section 271(1)(c) of the Act has not been fulfilled and have not issued show cause notice in this regard and hence, initiation of penalty proceedings are bad in law. We find no merit in the levy of penalty under section 271(1)(c) of the Act where the initiation of penalty proceedings is without recording of satisfaction. Accordingly, we delete the same. Hence, grounds of appeal raised by the assessee are allowed.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 without proper recording of satisfaction by the Assessing Officer.

Analysis:
The appeal challenges the penalty imposed under section 271(1)(c) of the Act for the assessment year 2007-08. The Assessing Officer held the assessee liable for penalty due to the addition of amounts to the income under different sections of the Act. The main contention raised in the appeal is whether the penalty imposed is justified for non-recording of satisfaction in the assessment order.

The Appellate Tribunal noted that under section 271(1)(c) of the Act, the Assessing Officer must record satisfaction that the assessee has either concealed income or furnished inaccurate particulars to initiate penalty proceedings. In this case, the satisfaction regarding the specific limb of section 271(1)(c) was missing. The Tribunal referred to a judgment by the Bombay High Court, emphasizing the importance of proper recording of satisfaction for initiating penalty proceedings.

The Tribunal further discussed the relevance of a show cause notice specifying the exact limb of section 271(1)(c) under which the penalty is being initiated. It cited a case where the High Court held that the absence of explicit mention in the notice regarding the reason for penalty initiation renders the penalty order invalid. The Tribunal concluded that without proper recording of satisfaction and a clear show cause notice, the penalty under section 271(1)(c) cannot be levied.

Additionally, the Tribunal referred to a decision by the Delhi High Court regarding the retrospective operation of section 271(1B) of the Act. The Court highlighted the importance of the Assessing Officer's satisfaction being discernible from the order passed during the proceedings. The Tribunal reiterated the pre-requisites for initiating penalty proceedings under section 271(1)(c) as per the Act.

In conclusion, the Tribunal found that the Assessing Officer did not record any satisfaction regarding the specific limb of section 271(1)(c) not being fulfilled, and no show cause notice was issued accordingly. Therefore, the initiation of penalty proceedings was deemed invalid. Consequently, the Tribunal allowed the appeal and deleted the penalty levied under section 271(1)(c) of the Act.

Overall, the Tribunal's decision was based on the requirement of proper recording of satisfaction by the Assessing Officer and the necessity of a clear show cause notice specifying the grounds for penalty initiation under section 271(1)(c) of the Act.