2020 (2) TMI 333 - HC - Income Tax

Penalty under Income Tax Act deleted due to defective notice lacking basis for satisfaction

The High Court held that the penalty levied under section 271(1)(c) of the Income Tax Act was deleted as the Assessing Officer did not establish ... Penalty under section 271(1)(c) - record of satisfaction for initiation of penalty proceedings - concealment of income or furnishing of inaccurate particulars - defective notice issued in printed form not struck off - inapplicability of MAK Data (p.) Ltd. on facts of defective noticePenalty under section 271(1)(c) - record of satisfaction for initiation of penalty proceedings - concealment of income or furnishing of inaccurate particulars - Whether penalty proceedings under section 271(1)(c) could be sustained in the absence of a recorded satisfaction by the Assessing Officer that there was concealment of income or furnishing of inaccurate particulars. - HELD THAT: - Both the Commissioner (Appeals) and the ITAT found, and this Court concurs, that there is no record of satisfaction by the Assessing Officer that the assessee had concealed income or furnished inaccurate particulars. Such recorded satisfaction is a sine qua non for initiation of penalty proceedings under section 271(1)(c). In the absence of that satisfaction, the authorities correctly ordered deletion/dropping of the penalty proceedings. The Court therefore upheld the conclusion that penalty could not be sustained without the requisite satisfaction being recorded. [Paras 5]Penalty under section 271(1)(c) cannot be sustained where there is no record of satisfaction by the Assessing Officer that income was concealed or inaccurate particulars were furnished; deletion of penalty upheld.Defective notice issued in printed form not struck off - record of satisfaction for initiation of penalty proceedings - Whether a notice for initiating penalty proceedings is vitiated when issued in a printed form without striking out inapplicable portions, thereby failing to indicate with clarity the nature of the satisfaction recorded. - HELD THAT: - This Court relied on the Division Bench decisions in Samson Perinchery and New Era Sova Mine, which require that the notice must indicate clearly whether the Assessing Officer is satisfied about concealment or furnishing of inaccurate particulars; where a printed form is used, inapplicable portions must be struck off to show the precise nature of the satisfaction. The notice dated 30/09/2016 in the present case did not have the inapplicable portions struck off and thus was defective. That defect, coupled with the absence of any recorded satisfaction, demonstrates lack of proper application of mind and invalidates initiation of penalty proceedings. [Paras 6, 7]The notice is defective for not striking off inapplicable portions; such defect, together with absence of recorded satisfaction, vitiates initiation of penalty proceedings.Inapplicability of MAK Data (p.) Ltd. on facts of defective notice - penalty under section 271(1)(c) - Whether the principle in MAK Data (P.) Ltd. - that piecemeal disclosure in revised returns does not preclude penalty - warrants interference with deletion of penalty in the present case. - HELD THAT: - The Court held that MAK Data is not persuasive in the peculiar facts of this case because the foundational defect is the defective notice and absence of any finding of concealment or inaccurate particulars. Since initiation of penalty itself was infirm for want of recorded satisfaction and a clear notice, the appellant's reliance on MAK Data does not avail to sustain the penalty or to justify interference with the orders of the lower authorities. [Paras 3, 8]MAK Data does not apply on these facts; the defect in the notice and absence of recorded satisfaction render the reliance on MAK Data inapplicable and provide no ground to disturb deletion of penalty.Final Conclusion: The Court declined to admit the appeal and dismissed it: no substantial question of law arose because the penalty under section 271(1)(c) was rightly deleted due to absence of recorded satisfaction and a defective notice that did not strike off inapplicable portions; reliance on MAK Data was held inapposite on these facts. Issues:Whether the Tribunal was right in deleting the penalty levied under section 271(1)(c) of the Income Tax Act, 1961 based on the disclosure made by the assessee in the revised returns.Analysis:The appellant's counsel argued that the revised returns filed by the respondent showed piecemeal disclosures, citing the case of Mak Data (P.) Ltd v/s. Commissioner of Income Tax, and contended that such disclosures do not absolve the assessee from paying the penalty. The appellant emphasized that the assessment order referred to concealment or inaccurate particulars, making the deletion of penalty by the Commissioner (Appeals) and ITAT questionable.On the other hand, the respondent's counsel pointed out the absence of any findings regarding concealment or furnishing of inaccurate particulars. He highlighted that the notice issued to the assessee did not specify the basis for satisfaction, relying on legal precedents to argue that a penalty cannot be sustained based on a defective notice.The High Court examined the contentions and records, noting that both the Commissioner (Appeals) and ITAT concluded that there was no satisfaction by the Assessing Officer regarding concealment or inaccurate particulars, which is essential for initiating penalty proceedings. Referring to legal judgments, the Court emphasized the importance of a notice clearly indicating the basis for satisfaction, and in this case, found that the notice was defective as it did not strike off inapplicable portions.The Court held that the defective notice and absence of satisfaction regarding concealment or inaccurate particulars rendered the penalty proceedings invalid. Citing consistency with previous legal decisions, the Court dismissed the appeal, stating that no substantial question of law arose in this case. The Court also referred to a similar decision in Tax Appeal No.24 of 2019, where the appeal was declined based on identical facts, further supporting the dismissal of the present appeal.