2019 (1) TMI 1908 - AT - Income Tax

Penalty proceedings under Income Tax Act quashed due to lack of proper initiation.

The Tribunal held that the initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act was legally untenable as the Assessing Officer ... Levy penalty u/s. 271AAB V/S levy penalty u/s. 271(1)(c) - assumption of jurisdiction to levy penalty u/s. 271(1)(c) - assessee objected to penalty proceedings u/s 271AAB since no search u/s. 132 of the Act happened - AO mentioned in the penalty order that he inadvertently issued notice u/s. 271AAB of the Act and then levied penalty u/s. 271(1)(c) - As per assessee no search u/s. 132 of the Act was conducted against him, the penalty u/s 271AAB is not attracted in the instant case - HELD THAT:- Here in this case, we have reproduced the satisfaction of AO in the assessment order which was for levy of penalty u/s. 271 AAB of the Act and in the assessment order, the AO initiated penalty u/s. 271AAB of the Act. AO without even initiating penalty u/s. 271(1)(c) of the Act in the assessment order itself, the imposition of penalty u/s. 271(1)(c) of the Act where in the assessment order AO adds any amount or disallowed while computing the total income or loss of an assessee in and the said order does not contains a direction for initiation of penalty proceedings under clause (c) of subsection (1), such an order of assessment or reassessment cannot be deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings under the said clause (c). We note that in the assessment order the AO has neither recorded satisfaction to levy penalty against the assessee u/s. 271(1)(c) of the Act nor has he initiated the penalty u/s. 271(1)(c) of the Act. Therefore, after recording satisfaction in assessment order to levy penalty u/s. 271AAB and initiation of penalty u/s. 271AAB of the Act, the AO does not have jurisdiction to levy penalty u/s. 271(1)(c) of the Act. We also rely on the Karnataka High Court decision in CIT Vs. MWP Ltd. [2013 (12) TMI 1214 - KARNATAKA HIGH COURT] Issues Involved:1. Legality of penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act.2. Correctness of the assessment order and the subsequent initiation of penalty under Section 271AAB and later under Section 271(1)(c).Detailed Analysis:1. Legality of Penalty Proceedings Initiated Under Section 271(1)(c) of the Income Tax Act:The primary issue raised by the assessee in the Cross Objection was that the penalty proceedings under Section 271(1)(c) were not initiated with the assessment order passed under Section 143(3) dated 22.03.2016. Instead, the penalty proceedings were initiated by notice dated 16.09.2016, much after the completion of the assessment proceedings. The assessee contended that this initiation of penalty proceedings was bad in law and needed to be quashed.The Tribunal noted that the assessment order dated 22.03.2016 did not contain any direction to initiate penalty proceedings under Section 271(1)(c). Instead, the Assessing Officer (AO) had initiated penalty proceedings under Section 271AAB of the Act. It was only after realizing the mistake that the AO dropped the Section 271AAB penalty proceedings and issued a fresh notice under Section 271(1)(c) on 16.09.2016. The Tribunal emphasized that for levying penalty under Section 271(1)(c), the AO must record his satisfaction while passing the assessment order itself and give a direction to initiate penalty under Section 271(1)(c). Since the AO neither recorded satisfaction nor initiated penalty under Section 271(1)(c) in the assessment order, the subsequent initiation of penalty proceedings under Section 271(1)(c) was deemed legally untenable.2. Correctness of the Assessment Order and Subsequent Initiation of Penalty Under Section 271AAB and Later Under Section 271(1)(c):The Tribunal examined the facts and noted that a search and seizure operation under Section 132 was carried out in the Rupa Group of cases on 07.11.2013. However, no search warrant under Section 132 was issued against the assessee, and no Section 153A proceedings were initiated against the assessee. The AO, while completing the assessment under Section 143(3) on 22.03.2016, recorded his opinion that the assessee was liable to penalty under Section 271AAB and initiated penalty proceedings under the same section.However, when the assessee objected to the penalty proceedings under Section 271AAB on the grounds that no search under Section 132 was conducted against him, the AO dropped the Section 271AAB penalty proceedings and issued a fresh notice under Section 271(1)(c) on 16.09.2016. The Tribunal held that this action was not permissible as the AO had not recorded satisfaction to levy penalty under Section 271(1)(c) in the assessment order nor initiated penalty under Section 271(1)(c) in the assessment order.The Tribunal referred to Section 271(1B) and clarified that for the AO to assume jurisdiction to levy penalty under Section 271(1)(c), there must be a satisfaction recorded in the assessment order itself. Since the AO had only recorded satisfaction and initiated penalty under Section 271AAB, the subsequent initiation of penalty under Section 271(1)(c) was without jurisdiction. The Tribunal also relied on the Karnataka High Court decision in CIT Vs. MWP Ltd., which supported their conclusion.Conclusion:The Tribunal allowed the grounds raised by the assessee in the Cross Objection, holding that the AO's order under Section 271(1)(c) was not in accordance with the rule of law and was without jurisdiction. Consequently, the penalty order under Section 271(1)(c) was quashed. The appeal of the revenue was dismissed as academic.Final Order:The appeal of the revenue and the Cross Objection of the assessee were dismissed. The order was pronounced in the open court on 23rd January 2019.