2016 (5) TMI 1439 - AT - Income Tax

Penalty proceedings ruled invalid under Income-tax Act

The Tribunal found the penalty proceedings invalid due to ambiguity in the initiation and levy of penalties under section 271(1)(c) of the Income-tax Act. ... Levy of penalty u/s 271(1)(c) - not coming to the conclusion as to the proper limb, which has not been satisfied for issuing notice - Held that:- Penalty proceedings have been initiated in respect of additional income offered. AO had recorded satisfaction that the assessee has concealed its income but had levied penalty on account of concealment of income by furnishing inaccurate particulars of income. Such an order imposing concealment penalty is not sustainable for not coming to the conclusion as to the proper limb, which has not been satisfied. In respect of second set of penalty i.e. unexplained investment in jewellery and on account of on-money received, penalty proceedings were initiated without mentioning the limb which has not been satisfied by the assessee and penalty has been levied for violation of both the limbs of section and such order imposing concealment penalty is not sustainable and hence, the same is held to be invalid in law. We direct the Assessing Officer to delete penalty levied under section 271(1)(c) of the Act in all the years under appeal. - Decided in favour of assessee. Issues Involved:1. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.2. Recording of satisfaction by the Assessing Officer (AO) under section 271(1)(c).3. Ambiguity in the initiation and levy of penalty under section 271(1)(c).4. Validity of penalty proceedings when initiated and levied under different limbs of section 271(1)(c).Issue-wise Detailed Analysis:1. Levy of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:The primary issue in these appeals was the levy of penalty under section 271(1)(c) of the Act. The penalty was levied for alleged concealment of income and furnishing inaccurate particulars of income. The assessee contested the penalty on the grounds that the AO did not specify which limb of section 271(1)(c) was violated. The penalty was imposed on additional income declared in response to a notice issued under section 153A and on unexplained jewelry.2. Recording of Satisfaction by the Assessing Officer (AO) under Section 271(1)(c):The AO must record satisfaction during the assessment proceedings regarding whether the assessee has concealed income or furnished inaccurate particulars. The AO in this case recorded satisfaction for both limbs but did not specify which one was applicable. This lack of clarity and specificity in recording satisfaction was a significant point of contention.3. Ambiguity in the Initiation and Levy of Penalty under Section 271(1)(c):The assessee argued that there was confusion and ambiguity in the entire process of levy of concealment penalty. The AO initiated penalty proceedings for both concealment of income and furnishing inaccurate particulars but ultimately levied the penalty for furnishing inaccurate particulars. The Tribunal found merit in the assessee's plea that such ambiguity and lack of clear satisfaction recording rendered the penalty proceedings unsustainable.4. Validity of Penalty Proceedings When Initiated and Levied Under Different Limbs of Section 271(1)(c):The Tribunal held that penalty under section 271(1)(c) is leviable only when the AO clearly identifies and records which limb (concealment of income or furnishing inaccurate particulars) has been violated. The AO's failure to specify the exact charge and the subsequent imposition of penalty on both limbs without clear distinction was deemed invalid. The Tribunal relied on precedents, including the Hon'ble Bombay High Court's decision in CIT Vs. Shri Samson Perinchery and the Karnataka High Court's decision in CIT Vs. Manjunatha Cotton and Ginning Factory, to support its conclusion.Conclusion:The Tribunal concluded that the penalty proceedings were invalid due to the AO's failure to record clear satisfaction and the ambiguity in initiating and levying the penalty under section 271(1)(c). Consequently, the appeals were allowed, and the penalties were directed to be deleted. The Tribunal emphasized the necessity for the AO to clearly specify the exact charge against the assessee to uphold the principles of natural justice.