2005 (3) TMI 94 - HC - Income Tax

Appeal Dismissed: Court Affirms ITAT Decision on Penalty Cancellation Due to Lack of Assessing Officer Satisfaction.

The High Court dismissed the appeal, affirming the ITAT's decision to cancel the penalty under section 271(1)(c) for lack of recorded satisfaction by the ... Levy of penalty u/s 271(1)(c) on suppression of sale - Added back profit on the undisclosed sales - HELD THAT:- The Tribunal while granting this relief to the appellant had relied upon the judgment of the Supreme Court in the case of CIT v. S. V. Angidi Chettiar [1962 (1) TMI 10 - SUPREME COURT]. It is a settled principle of law and the provisions of section 271(1)(c) on their plain reading would require proper application of mind and recording of at least bare minimum opinion on the part of the Assessing Officer that a case for initiation of penalty proceedings was made as there was concealment of income, or that incorrect particulars had been furnished by the assessee, with intention to avoid payment of tax. In the present case the Assessing Officer had recorded satisfaction with regard to one sum while with regard to the other he made no such indication, as is clear from the above reproduced relevant portion of the order of the Assessing Officer. We find no merit in this appeal as it raises no question of law, much less a substantial question of law, as such an interpretation is clear from the bare reading of the provisions and it has already been the subject-matter of pronouncements by various courts. The view consistently is in the above terms. Thus, in view of the judgment of this court in CIT v. S. R. Fragnances Ltd. [2003 (11) TMI 24 - DELHI HIGH COURT] this appeal is dismissed, while leaving the parties to bear their own costs. Issues:1. Addition of undisclosed sales and penalty proceedings under section 271(1)(c) initiated.2. Disallowance of commission paid and initiation of penalty proceedings under section 271(1)(c).3. Appeal against penalty proceedings decision by Commissioner, Income-tax (Appeals).4. Tribunal's decision on penalty proceedings and reliance on case law.5. Dismissal of appeal by the High Court based on settled legal principles.Issue 1: Addition of undisclosed sales and penalty proceedings under section 271(1)(c) initiated:The assessee initially filed a return showing income, which was later revised during assessment. The Assessing Officer added back profit on undisclosed sales and detected further discrepancies during a survey. Subsequently, penalty proceedings under section 271(1)(c) were initiated based on the addition to the total income. The Assessing Officer observed discrepancies in the closing stock figures and initiated penalty proceedings.Issue 2: Disallowance of commission paid and initiation of penalty proceedings under section 271(1)(c):Regarding the commission paid to Mrs. Archana Gupta, the Assessing Officer disallowed the amount, considering it as not genuine and merely an accommodatory entry. This disallowed amount was added to the income of the assessee, and penalty proceedings under section 271(1)(c) were initiated based on this disallowance.Issue 3: Appeal against penalty proceedings decision by Commissioner, Income-tax (Appeals):The assessee appealed the penalty proceedings decision by the Commissioner, Income-tax (Appeals). The Commissioner partially accepted the appeal, setting aside the penalty related to suppression of sales but upholding the penalty related to the disallowed commission. The order was challenged before the Income-tax Appellate Tribunal.Issue 4: Tribunal's decision on penalty proceedings and reliance on case law:The Income-tax Appellate Tribunal allowed the appeal of the assessee, providing relief on the disallowed commission amount. The Tribunal emphasized the requirement for the Assessing Officer to record satisfaction before initiating penalty proceedings, citing relevant case law. The Tribunal canceled the penalty based on the lack of recorded satisfaction by the Assessing Officer.Issue 5: Dismissal of appeal by the High Court based on settled legal principles:The High Court dismissed the appeal, stating that it did not raise any substantial question of law. The court highlighted that the provisions of section 271(1)(c) require proper application of mind and recording of satisfaction by the Assessing Officer. The court referred to previous judgments and upheld the Tribunal's decision to cancel the penalty, leaving the parties to bear their own costs.This detailed analysis covers the various issues involved in the legal judgment, addressing the additions to income, disallowances, penalty proceedings, appellate decisions, and the final ruling by the High Court based on established legal principles and case law.