1998 (10) TMI 13 - HC - Income Tax

Penalty under s.271 requires assessing authority's recorded satisfaction; absent it, penalty initiation cannot be presumed, s.256 applications dismissed

The HC affirmed that penalty proceedings under s.271 require the assessing authority to record its satisfaction; absent such a finding in the assessment ... Deletion of penalty - Concealment Of Income - furnishing inaccurate particulars of income - addition made to the income of the assessee by the figure of over and above the income already returned - HELD THAT:- The law is clear and explicit. Merely because this court while hearing this application may be inclined to form an opinion that the material available on record could have enabled the initiation of penalty proceedings that cannot be a substitute for the requisite finding which should have been recorded by the assessing authority in the order of assessment but has not been so recorded. A bare reading of the provisions of section 271 and the law laid down by the Supreme Court makes it clear that it is the assessing authority which has to form its own opinion and record its satisfaction before initiating the penalty proceedings. Merely because the penalty proceedings have been initiated, it cannot be assumed that such a satisfaction was arrived at in the absence of the same being spelt out by the order of the assessing authority. Even at the risk of repetition we would like to state that the assessment order does not record the satisfaction as warranted by section 271 for initiating the penalty proceedings. As we have already held that the question suggested by the Revenue does not arise as a question of law from the order of the Tribunal, no fault can be found with the Tribunal rejecting the Department's application under section 256(1) of the Act. The present petition under section 256(2) is rejected though without any order as to costs. Issues involved: The issue involves a petition u/s 256(2) of the Income-tax Act, 1961, where the Revenue seeks a mandamus to the Income-tax Appellate Tribunal regarding the deletion of penalty u/s 271(1)(c) imposed on the assessee for allegedly furnishing inaccurate particulars of income.Summary:The assessment year in question is 1986-87. The assessee initially declared an income of Rs. 15,700 but later revised the return, surrendering additional income totaling Rs. 24,50,000. The Assessing Officer initiated penalty proceedings u/s 271(1)(c) and imposed a penalty of Rs. 9,77,100 on the assessee for allegedly concealing income. The penalty was confirmed by the Commissioner of Income-tax (Appeals) but set aside by the Income-tax Appellate Tribunal.The Revenue moved a petition u/s 256(1) seeking to refer the question of law to the High Court, which was rejected by the Tribunal. The Revenue contended that the Tribunal erred in deleting the penalty as a clear case of income concealment existed. The assessee argued that the satisfaction for penalty initiation must be arrived at during assessment proceedings, as per legal precedents.The Tribunal set aside the penalty based on the absence of a specific finding in the assessment order conferring jurisdiction for penalty proceedings. The High Court held that the assessing authority must record its satisfaction before initiating penalty proceedings, which was not done in this case. Therefore, the suggested question of law did not arise, and the Tribunal's decision was upheld.In conclusion, the High Court rejected the petition u/s 256(2) without costs, affirming that the Tribunal's decision to delete the penalty was justified based on the legal requirement for satisfaction by the assessing authority before initiating penalty proceedings.