2025 (8) TMI 1334 - AT - Income Tax

Penalty under s.271(1)(c) quashed where s.271AAB penalty deleted and show-cause notice lacked specified limb or recorded satisfaction

Sanjeev Kumar Versus ACIT, CC-14, New Delhi

ITAT DELHI - AT held that the CIT(A) lacked lawful jurisdiction to assume and issue a penalty notice under s. 271(1)(c) after deleting penalty under s. ... Penalty u/s. 271(1)(c) OR 271AAB - amount as surrendered by the assessee in his return of income filed u/s. 153A -CIT(A) has deleted the penalty u/s. 271AAB and initiated penalty u/s. 271(1)(c) - HELD THAT:- Jurisdiction u/s. 271(1)(c) assumed by the CIT(A) is not in accordance with law and notice u/s. 271(1)(c) so issued by CIT(A) is also not in accordance with law, hence, the same quashed. To support our aforesaid view, we draw our support from the decision of Neeraj Jindal [2017 (2) TMI 1002 - DELHI HIGH COURT] Contention of the assessee that CIT(A) has erred in law and on facts in imposing the penalty u/s. 271(1)(c) and passing the impugned penalty order and that too without recording the mandatory ‘satisfaction’ - We quote PCIT vs. Sahara India Life Insurance Co. Ltd. [2019 (8) TMI 409 - DELHI HIGH COURT] and PCIT vs. Gopal Kumar Goyal [2023 (7) TMI 690 - DELHI HIGH COURT] to conclude that once the AO has not specified the corresponding limb in his section 271(1)(c) penalty show cause notice forming part of the case records, his failure to this clinching effect indeed vitiates the penalty proceedings itself. We order accordingly. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 271(1)(c) can be imposed in respect of amounts surrendered in a return filed under section 153A when the revised/153A return has been accepted by the Assessing Officer. 2. Whether a first-instance appellate authority (CIT(A)) can initiate and impose penalty under section 271(1)(c) where the Assessing Officer had initiated/actually proceeded under a different penal provision (section 271AAB) in respect of the same surrendered amount. 3. Whether a penalty under section 271(1)(c) is valid where the authority imposing it has not recorded the mandatory 'satisfaction' required by law and where the show-cause/penalty notice does not specify the particular limb of section 271(1)(c) (i.e., concealment of income vs. furnishing inaccurate particulars). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Imposability of section 271(1)(c) penalty on surrendered amount declared in a return filed under section 153A Legal framework: Section 153A provides for assessment when search or seizure has taken place and permits filing of a return/revised return for the relevant assessment year. Section 271(1)(c) penalizes concealment of income or furnishing inaccurate particulars. The concept of 'concealment' must be ascertained with reference to the operative return before the authority. Precedent treatment: The Court follows the binding view of the higher court that where a revised return filed under section 153A is accepted by the Assessing Officer, the original return abates and becomes non-est, so 'concealment' must be assessed with reference to the revised return; mere showing of higher income in the revised return does not automatically attract section 271(1)(c). Interpretation and reasoning: The Court reasons that if the Assessing Officer accepts the return filed under section 153A, the factual and legal basis for alleging concealment vis-à-vis the original return disappears; the accepted revised return is the operative return. Thus, amounts declared/surrendered in the accepted 153A return cannot form the foundation for imposing section 271(1)(c) absent additional material showing concealment relative to that operative return. Ratio vs. Obiter: Ratio - penalty under section 271(1)(c) cannot be imposed solely because a revised/153A return shows higher income and has been accepted; concealment must be judged against the accepted return. Obiter - elaborations on factual permutations where Explanation 5 or other tests apply. Conclusion: The penalty under section 271(1)(c) cannot be sustained against the surrendered amounts declared in an accepted section 153A return; such imposition is contrary to the controlling legal principle. Issue 2 - Competence of appellate authority to initiate and impose a different penalty when AO initiated proceedings under a specific penal provision Legal framework: Penal jurisdiction is tied to initiation of proceedings under proper statutory provision and the authority competent to initiate or impose a particular penalty. Principles of jurisdictional competence require that a penalty be both initiated and imposed under the same statutory limb unless law permits otherwise. Precedent treatment: The Court follows established authority holding that an appellate authority cannot assume or reframe the penal jurisdiction in respect of a specific amount where the Assessing Officer had initiated proceedings only under a different penal provision for that amount. Interpretation and reasoning: The Court observes that the Assessing Officer initiated penalty proceedings under section 271AAB in respect of the surrendered sum; the CIT(A) deleted that penalty but then purported to initiate and impose penalty under section 271(1)(c) for the same sum. The Tribunal holds this to be impermissible because the CIT(A) lacked the power to initiate a distinct penal proceeding in place of the AO's chosen penal provision; the initiation notice under section 271(1)(c) issued by the CIT(A) was not in accordance with law and is therefore quashed. Ratio vs. Obiter: Ratio - an appellate authority cannot assume jurisdiction to initiate a different penal proceeding (271(1)(c)) in respect of amounts where the AO had initiated proceedings under another penal provision (271AAB); initiation by the competent authority is a precondition for valid levy. Obiter - commentary on procedural fairness of re-initiating penalties at appellate stage. Conclusion: Penalty proceedings initiated and imposed by the appellate authority under section 271(1)(c) in respect of amounts for which the AO had initiated section 271AAB proceedings are ultra vires and are to be quashed. Issue 3 - Requirement of recording mandatory 'satisfaction' and specification of the limb in the show-cause/penalty notice under section 271(1)(c) Legal framework: Section 271(1)(c) requires the authority imposing penalty to form and record satisfaction that concealment or furnishing inaccurate particulars has occurred; procedural fairness demands that the notice specify the basis and the particular limb relied upon so that the assessee can adequately meet the case. Precedent treatment: The Court relies on authorities establishing that failure to specify the corresponding limb in the show-cause notice or to record the requisite satisfaction vitiates penalty proceedings; such omissions are not curable by later statements and go to the root of the validity of penalty proceedings. Interpretation and reasoning: The Court examines the appellant's contention that the CIT(A) did not record the mandatory satisfaction and did not clearly state the charge (concealment versus furnishing inaccurate particulars) in the penalty proceedings. While the CIT(A) purported to record satisfaction in the appellate order, the Tribunal notes precedents holding that where the Assessing Officer's initial notice does not specify the limb and the AO did not form the satisfaction, the entire penalty proceeding is vitiated. The Tribunal also cites authority that absence of specification/satisfaction in the notice undermines the validity of the imposition. Ratio vs. Obiter: Ratio - omission by the initiating authority to specify the relevant limb of section 271(1)(c) and to record the mandatory satisfaction vitiates the penalty proceedings. Obiter - observations on remedial possibilities and the effect of later articulation of satisfaction by appellate authority where initial notice was deficient. Conclusion: The penalty proceedings under section 271(1)(c) are invalid where the initiating authority failed to specify the particular limb in the penalty notice and did not record the mandated satisfaction; such procedural deficiencies require quashing of the penalty. Cross-references and Overall Conclusion These issues are interlinked: because the surrendered amounts were declared in an accepted section 153A return, penal liability under section 271(1)(c) could not be predicated solely on those declarations (Issue 1), and because the Assessing Officer had initiated proceedings under section 271AAB (Issue 2), the CIT(A)'s initiation/imposition of section 271(1)(c) was beyond jurisdiction. Additionally, the lack of a clear specification of the limb and recorded satisfaction in the initiating notice (Issue 3) further vitiates the penalty proceedings. The Court, applying binding precedent and these legal principles, sets aside and deletes the impugned penalty.