2021 (6) TMI 249 - AT - Income Tax

Penalty u/s 271(1)(c) - whether the assessee has concealed particulars of income or has furnished inaccurate particulars of income during assessment proceedings? - non recording of satisfaction by AO - HELD THAT - When the AO has failed to apply his mind while recording satisfaction at the time of framing assessment to initiate the penalty proceedings u/s 271(1)(c) of the Act as to under which limb of section 271(1)(c) of the Act i.e. for concealing of particulars of income or furnishing of inaccurate particulars of income, such penalty proceedings initiated on the basis of vague and ambiguous satisfaction are not sustainable in the eyes of law. Consequently, ld. CIT(A) has rightly deleted the penalty levied by the AO. Finding no illegality or perversity in the impugned order, appeal filed by the Revenue is hereby dismissed.

Summary

Issues Involved:
1. Appeal by the Revenue against the deletion of penalty order under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2012-13.
2. Cross objections by the assessee seeking to quash the penalty order and uphold the order passed by the Commissioner of Income-tax (Appeals) for the same assessment year.

Analysis:

Issue 1: Appeal by the Revenue
The Revenue appealed to set aside the order deleting the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961. The Assessing Officer (AO) initiated penalty proceedings based on the income declared in response to a notice issued under section 153A. The AO alleged that if the notice had not been issued, a significant amount would have escaped assessment. However, the Commissioner of Income-tax (Appeals) deleted the penalty. The Tribunal found that the AO failed to validly satisfy whether the penalty was initiated under section 271AAB or 271(1)(c). The judgment cited the requirement of a valid satisfaction for initiating penalties, as established in the case law of CIT vs. Manjunatha Cotton and Ginning Factory. The Tribunal concluded that the penalty proceedings were not sustainable due to the lack of a clear satisfaction by the AO, leading to the dismissal of the Revenue's appeal.

Issue 2: Cross Objections by the Assessee
The assessee filed cross objections seeking to quash the penalty order and uphold the order passed by the Commissioner of Income-tax (Appeals). The cross objections highlighted that the penalty imposed by the AO was considered a nullity and deserved to be quashed on multiple grounds under section 271(1)(c) of the Act. The Tribunal noted that the AO's failure to apply his mind while initiating penalty proceedings rendered them unsustainable. The judgment emphasized the necessity of a valid satisfaction by the AO for penalty initiation, as per the legal precedent cited. Consequently, the Tribunal upheld the deletion of the penalty and dismissed both the Revenue's appeal and the assessee's cross objections.

In conclusion, the Tribunal's detailed analysis focused on the procedural errors in initiating the penalty proceedings under section 271(1)(c) of the Income-tax Act, emphasizing the requirement of a valid satisfaction by the Assessing Officer. The judgment underscored the importance of clarity and specificity in penalty imposition based on the grounds identified during the proceedings, as established in relevant case law.