2022 (6) TMI 646 - AT - Income Tax

Penalty u/s 271(1)(c) - deferred revenue expenditure did not pertain to the assessment year under consideration, it was not allowable and accordingly he disallowed the same - HELD THAT - A perusal of the assessment order reveals that while making the addition of Rs.26,080/- on account of deferred revenue expenditure, no satisfaction has been recorded by the A.O. as to whether it is a case of concealment of particulars of income or furnishing of inaccurate particulars of income. We find force in the arguments of the Learned A.R. and the decisions relied on by the Learned A.R. On this score itself similar view is taken by Hon ble Karnataka High Court in the case of CIT vs. M/s. SSAs Emerald Meadows 2015 (11) TMI 1620 - KARNATAKA HIGH COURT This decision is confirmed by the Hon ble Supreme Court reported 2016 (8) TMI 1145 - SC ORDER - In this view of the matter, the orders of the authorities below are set aside and penalty is cancelled. Ground of appeal No.1 of the assessee is allowed. Power of CIT-A to Levy of penalty under section 271AAA - CIT-A deleted the penalty levied under section 271(1)(c) by holding that A.O. had erroneously applied the provisions of Section 271(1)(c) however directed the A.O. to initiate penalty proceedings under section 271AAA - HELD THAT - We find an identical issue arose before the Hon ble Kerala High Court in the case of CIT vs., Eminent Enterprises 1992 (6) TMI 20 - KERALA HIGH COURT as held that it is not open to the First Appellate Authority i.e., Ld. CIT(A) to set aside the order of the A.O. and order a remand or to give any directions. Thus we are of the view that the Ld. CIT(A) was not justified in giving direction to the A.O. to levy penalty under section 271AAA of the I.T. Act, 1961. We, therefore, set aside the order of the Ld. CIT(A) on this ground. Accordingly, ground of appeal No.2 of the assessee is allowed.

Summary

Issues Involved:
1. Confirmation of penalty on addition of Rs. 26,080.
2. Direction to issue notice under section 271AAA, and whether such direction is barred by limitation and void ab initio.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty on Addition of Rs. 26,080:
The first issue pertains to the confirmation of penalty on an addition of Rs. 26,080, which was disallowed by the Assessing Officer (A.O.) as "deferred revenue expenditure" not pertaining to the assessment year under consideration. The A.O. levied penalty under section 271(1)(c) of the Income Tax Act, 1961, for this disallowance. The assessee argued that no satisfaction was recorded by the A.O. regarding whether it was a case of concealment of income or furnishing inaccurate particulars of income. The assessee relied on the Karnataka High Court decisions in CIT vs. Manjunatha Cotton & Ginning Factory and CIT vs. SSA's Emerald Meadows, which were confirmed by the Supreme Court, stating that penalty cannot be levied without proper recording of satisfaction. The Tribunal found merit in the assessee's arguments and noted the absence of recorded satisfaction by the A.O. Consequently, the Tribunal set aside the orders of the lower authorities and canceled the penalty, allowing the assessee's appeal on this ground.

2. Direction to Issue Notice under Section 271AAA:
The second issue involved the direction by the Commissioner of Income Tax (Appeals) [CIT(A)] to the A.O. to issue a notice under section 271AAA for the levy of penalty on an addition of Rs. 44,50,000 on account of undisclosed cash. The CIT(A) had deleted the penalty levied under section 271(1)(c) but directed the A.O. to initiate penalty proceedings under section 271AAA. The assessee contended that the CIT(A) does not have the jurisdiction to direct the A.O. to initiate penalty proceedings under a different provision and that such direction is barred by limitation as per section 275 of the Act. The Tribunal referred to the Kerala High Court's decision in CIT vs. Eminent Enterprises, which held that the first appellate authority cannot set aside an order and issue directions for fresh action in penalty matters. The Tribunal found that the CIT(A) overstepped its jurisdiction by directing the A.O. to issue a notice under section 271AAA and that such direction was invalid and void ab initio. The Tribunal also noted that the direction was barred by limitation. Consequently, the Tribunal set aside the CIT(A)'s order on this ground, allowing the assessee's appeal.

Conclusion:
The Tribunal allowed the appeal of the assessee on both grounds. The penalty of Rs. 26,080 under section 271(1)(c) was canceled due to the absence of recorded satisfaction by the A.O. The direction by the CIT(A) to issue a notice under section 271AAA was set aside as it was beyond the jurisdiction and barred by limitation. The Tribunal's order was pronounced in open court on 13.06.2022.