2021 (3) TMI 1042 - AT - Income Tax

Penalty u/s 271(1)(c) - AO has not recorded any satisfaction as to whether the penalty u/s 271(1)(c) has been levied for furnishing of inaccurate particulars of income or it was a case of concealment of income - HELD THAT - The show-cause notice dated 20.03.2015 also does not specify as to for which limb of Section 271(1)(c) of the Act the penalty proceedings are initiated i.e. whether it is for concealment of the particulars of income or for furnishing of inaccurate particulars of income. Even in the penalty order no specific charge i.e. whether it is a case of furnishing of inaccurate particulars of income or a case of concealment of the particulars of income has been indicated. It is a settled law that while levying penalty for concealment the AO has to record satisfaction and thereafter come to a finding in respect of one of the limbs which is specified under section 271(1)(c) of the Act. The first step is to record satisfaction while completing the assessment as to whether the assessee had concealed its income or furnished inaccurate particulars of income. Notice u/s 274 read with Section 271(1)(c) of the Act is to be issued to the assessee. The Assessing Officer thereafter has to levy penalty under Section 271(1)(c) of the Act for non-satisfaction of either of the limbs. While completing the assessment the Assessing Officer has to come to a finding as to whether the assessee has concealed its income or furnished inaccurate particulars of income. In the present case following the aforesaid decision in the case of Sahara India Life Insurance Co. Ltd. 2019 (8) TMI 409 - DELHI HIGH COURT we are of the view that since the basic condition for levy of penalty has not been fulfilled the penalty order cannot be upheld. We accordingly set aside the penalty order passed by AO - Decided in favour of assessee.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act - Whether penalty was rightly levied for failure to furnish details and justification of claimed loss.

Analysis:
The appeal pertains to the levy of penalty under section 271(1)(c) of the Income Tax Act for the Assessment Year 2012-13. The case involves an assessee, a company engaged in trading shares, who filed a return of income declaring a loss. The Assessing Officer disallowed the claimed loss, leading to the imposition of a penalty of ?69,43,000 under section 271(1)(c) of the Act. The Commissioner of Income Tax (Appeals) upheld the penalty, prompting the assessee to appeal to the ITAT Delhi. The primary issue revolved around whether the penalty was rightly imposed due to the failure of the assessee to substantiate the claimed loss.

During the proceedings, the assessee contended that the penalty was not validly imposed as the Assessing Officer did not specify whether it was for concealment of income or furnishing inaccurate particulars. The notice issued under section 274 r.w.s 271(1)(c) did not mention the specific limb under which the penalty was initiated, rendering it legally flawed. The learned AR relied on a decision of the Hon'ble Delhi High Court in the case of Sahara India Life Insurance Co. Ltd. to support this argument. On the other hand, the Revenue supported the penalty, citing the failure of the assessee to provide details justifying the claimed loss.

The ITAT, after considering the submissions and perusing the record, noted that the Assessing Officer had not specified the grounds for penalty in the assessment order or the notice issued to the assessee. It emphasized that for a valid penalty under section 271(1)(c), the AO must determine whether the assessee concealed income or furnished inaccurate particulars. Referring to the Sahara India Life Insurance Co. Ltd. case, where the High Court upheld the ITAT's decision to delete the penalty due to lack of specificity in the notice, the ITAT concluded that the penalty order in the present case could not be upheld. Consequently, the ITAT set aside the penalty imposed by the AO, allowing the appeal of the assessee.

In conclusion, the ITAT's judgment focused on the procedural aspect of penalty imposition under section 271(1)(c) of the Income Tax Act, emphasizing the necessity for the Assessing Officer to clearly specify whether the penalty is for concealment of income or furnishing inaccurate particulars. Failure to adhere to this requirement renders the penalty order invalid, as highlighted by the decision in the Sahara India Life Insurance Co. Ltd. case, leading to the ITAT's decision to overturn the penalty in this case.