Tribunal cancels penalties under section 271(1)(c) due to lack of justification and satisfaction.

Deputy Commissioner of Income-tax Versus Purti Sakhar Karkhana

Deputy Commissioner of Income-tax Versus Purti Sakhar Karkhana - [2013] 23 ITR 667 Issues Involved:
1. Legality of the penalty imposed under section 271(1)(c) of the Income-tax Act.
2. Validity of the Assessing Officer's satisfaction for initiating penalty proceedings.
3. Impact of the revised return filed under section 153A on the penalty proceedings.
4. Applicability of Explanation 1 to section 271(1)(c) in the context of surrendering capital work-in-progress.
5. Jurisdiction and procedural correctness of penalty imposition under section 271(1)(c).

Detailed Analysis:

1. Legality of the Penalty Imposed under Section 271(1)(c) of the Income-tax Act:
The core issue revolves around whether the penalty imposed under section 271(1)(c) for furnishing inaccurate particulars of income is legally justified. The Commissioner of Income-tax (Appeals) (CIT(A)) deleted the penalty, holding that the reduction in capital work-in-progress was voluntary and not based on any document or evidence found during the search. The Tribunal upheld this view, noting that the penalty was imposed merely because the assessee agreed to reduce the capital work-in-progress, which does not constitute concealment of income or furnishing inaccurate particulars.

2. Validity of the Assessing Officer's Satisfaction for Initiating Penalty Proceedings:
The Tribunal emphasized the necessity for the Assessing Officer (AO) to record satisfaction during the assessment proceedings that the assessee had concealed income or furnished inaccurate particulars. The AO's mere statement that 'penalty proceedings under section 271(1)(c) are initiated separately' was deemed insufficient. The Tribunal cited various case laws, including CIT v. Ram Commercial Enterprises Ltd., to assert that explicit satisfaction must be recorded in the assessment order, which was not done in this case.

3. Impact of the Revised Return Filed under Section 153A on the Penalty Proceedings:
The Tribunal noted that the returns filed under section 153A were accepted by the AO without any variation, meaning there was no difference between the returned income and the assessed income. This acceptance implies that there was no concealment or furnishing of inaccurate particulars. The Tribunal held that penalty under section 271(1)(c) cannot be imposed if the income returned under section 153A is accepted without any addition or disallowance.

4. Applicability of Explanation 1 to Section 271(1)(c) in the Context of Surrendering Capital Work-in-Progress:
Explanation 1 to section 271(1)(c) shifts the burden of proof to the assessee to show that the failure to return the correct income was not due to fraud or neglect. However, the Tribunal found that this explanation was not applicable because the AO did not bring any material on record to prove that the assessee had filed false particulars. The Tribunal also noted that the surrender of capital work-in-progress was made to avoid litigation and buy peace, which does not automatically imply concealment or furnishing of inaccurate particulars.

5. Jurisdiction and Procedural Correctness of Penalty Imposition under Section 271(1)(c):
The Tribunal scrutinized the procedural aspect and found that the AO did not specify the exact charge (concealment of income or furnishing of inaccurate particulars) in the penalty notice. This lack of specificity renders the penalty order invalid. The Tribunal cited the case of CIT v. Manu Engineering Works, which underscores the necessity of specifying the charge for which the penalty is levied. The Tribunal also highlighted that the penalty cannot be quantified under section 271(1)(c) as the tax sought to be evaded was nil, given that the returned income matched the assessed income.

Conclusion:
The Tribunal concluded that the penalties levied under section 271(1)(c) were not justified as the necessary conditions for imposing such penalties were not met. The AO failed to record explicit satisfaction regarding the concealment of income or furnishing of inaccurate particulars, and the returns filed under section 153A were accepted without any variation. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the penalties for all the assessment years involved.