2023 (4) TMI 745 - 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 the assessment proceedings? - as contended that at the time of framing assessment the AO has failed to apply his mind by recording valid satisfaction as to which of the limb of section 271(1)(c) i.e. for concealing particulars of income or furnishing inaccurate particulars of such income penalty proceedings are being initiated rather vague and ambiguous satisfaction - HELD THAT - When we examine the satisfaction recorded by the AO to initiated the penalty proceedings u/s 271(1)(c) of the Act in the light of the settled principle of law that in order to invoke the provisions contained u/s 271(1)(c) of the Act i.e. as to whether the assessee has furnished inaccurate particulars of income or concealed particulars of income need to be invoked specifically but in the instant case the AO has failed to apply his mind at the time of recording his satisfaction at the time of framing assessment to initiate the penalty proceedings under section 271(1)(c) of the Act as to under which limb of section 271(1)(c) penalty proceedings are being initiated, rather vague and ambiguous satisfaction has been recorded as discussed in the preceding paras. This is a mechanical satisfaction recorded by the AO which shows that the AO was himself not aware as to whether the assessee has concealed the particulars of income or furnished inaccurate particulars of such income. Not only this, when we examine penalty levied on account of salary disallowance AO has merely made adhoc addition by way of guess work and the AO has not arrived at a definite decision that the assessee has made wrong claim qua the expenditure on account of salary and wages. It is also settled principle of law that on the basis of any adhoc addition penalty proceedings under section 271(1)(c) of the Act cannot be levied. Disallowance of excess salary this addition has been deleted by the Ld. CIT(A) subject to the verification of the figures by the AO but the AO proceeded to levy the penalty on this amount also which shows that the entire process of initiating penalty proceedings were mechanical, without any application of mind. Appeal of assessee allowed.

Summary

Issues Involved:
The issues involved in the judgment include the condonation of delay in filing appeals, confirmation of penalty by the Commissioner of Income Tax (Appeals), and the determination of whether the assessee concealed or furnished inaccurate particulars of income during the assessment proceedings.

Condonation of Delay:
The appellant sought to condone a delay of 357 days in filing appeals due to financial hardships faced, including selling his residential flat and changing authorized representatives. The Revenue opposed, alleging malafide delay. The Tribunal, considering the financial hardships faced by the appellant, condoned the delay citing the principle of substantial justice prevailing over technical considerations.

Penalty Confirmation by CIT(A):
The appellant challenged penalty orders confirming penalties of Rs.18,92,513/- and Rs.13,20,370/- for different assessment years under section 271(1)(c) of the Income Tax Act. The penalties were based on additions made during assessments. The AO and CIT(A) had confirmed the penalties, leading the appellant to appeal to the Tribunal.

Assessment Proceedings and Penalty Levied:
The AO initiated penalty proceedings under section 271(1)(c) based on additions made during assessments. The AO levied penalties of Rs.18,92,513/- and Rs.13,20,370/- for different assessment years. The CIT(A) confirmed the penalties, leading to the appellant's appeal to the Tribunal.

Validity of Penalty Proceedings:
The appellant contended that the AO failed to apply his mind while initiating penalty proceedings and recorded vague and ambiguous satisfaction. The AO's satisfaction was deemed mechanical, lacking clarity on whether the appellant concealed income or furnished inaccurate particulars. The Tribunal found the penalty levied not sustainable in law due to lack of valid satisfaction and mechanical application.

Legal Precedents and Decisions:
The Revenue relied on legal precedents to support the penalty levied. However, the Tribunal found that the decisions cited were not applicable to the specific facts of the case. The Tribunal analyzed the satisfaction recorded by the AO and concluded that the penalty was not sustainable in law. Consequently, the penalties for both assessment years were ordered to be deleted.

Conclusion:
The Tribunal allowed both appeals filed by the assessee, finding the penalties levied by the AO and confirmed by the CIT(A) not sustainable in law. The penalties for the respective assessment years were ordered to be deleted, and the decision was pronounced in open court on 18.04.2023.