2013 (11) TMI 174 - AT - Income Tax

Appeal granted, penalty order set aside due to lack of recorded satisfaction for initiation. Void penalty proceedings.

TRIVENI ENGINEERING & INDUSTRIES LTD Versus DEPUTY COMMISIONER OF INCOME TAX CIRCLE-16(1), NEW DELHI

TRIVENI ENGINEERING & INDUSTRIES LTD Versus DEPUTY COMMISIONER OF INCOME TAX CIRCLE-16(1), NEW DELHI - TMI Issues Involved:1. Validity of the penalty order under section 271(1)(c) of the Income Tax Act due to being barred by limitation.2. Satisfaction for initiating penalty not recorded in the assessment order.3. Levy of penalty under section 271(1)(c) on disallowance towards interest on Sugar Development Fund (SDF).Detailed Analysis:Issue 1: Validity of the Penalty Order Due to Being Barred by LimitationThe appellant argued that the penalty order dated 18.03.2009 was illegal and barred by limitation as per section 275(1)(a) of the Income Tax Act, which requires that the penalty order should have been passed on or before 31.03.2006. The appellant relied on the judgment of the Delhi High Court in the case of Commissioner of Income Tax vs Mohair Investment & Trading Co. Pvt. Ltd., which clarified the limitation period for penalty orders.The Tribunal noted that the penalty order was passed within six months from the end of the month in which the ITAT order was received by the Commissioner, thus within the prescribed limitation period. The Tribunal cited the judgment of the Madras High Court in Rayala Corporation Pvt. Ltd. vs. Union of India, which supported this interpretation. Consequently, the Tribunal dismissed ground nos. 1 and 1.1, holding that the penalty order was not barred by limitation.Issue 2: Satisfaction for Initiating Penalty Not Recorded in the Assessment OrderThe appellant contended that the penalty order was ab initio illegal and bad in law as the satisfaction for initiating penalty proceedings was not recorded in the assessment order. The appellant cited several judgments, including Madhushree Gupta vs Union of India, which emphasized the necessity of recording satisfaction for initiating penalty proceedings.The Tribunal observed that the assessment order contained specific mentions of initiating penalty proceedings for various disallowances, but there was no such mention regarding the disallowance of interest on SDF loan. The Tribunal, following the judgment in Madhushree Gupta and other relevant cases, concluded that the absence of recorded satisfaction for the specific disallowance rendered the penalty proceedings void ab initio. Therefore, ground no. 1.2 was allowed, and the penalty order was set aside.Issue 3: Levy of Penalty on Disallowance Towards Interest on SDFGiven the Tribunal's decision on ground no. 1.2, it held that the initiation of penalty proceedings was void ab initio due to the lack of recorded satisfaction. Consequently, all subsequent proceedings, including the levy of penalty on the disallowance towards interest on SDF, became futile. The Tribunal declined to decide on the additional grounds related to the debatable nature of the issue, true and full disclosure, and bona fide belief, as these became academic in light of the decision on ground no. 1.2. Hence, grounds 2, 2.1, and 2.2 were dismissed.Conclusion:The appeal of the assessee was allowed, and the penalty order was set aside due to the failure to record satisfaction for initiating penalty proceedings in the assessment order. The Tribunal upheld that the penalty order was not barred by limitation but found the initiation of penalty proceedings void ab initio due to procedural lapses.