TaxTMI 
TaxTMI 
2026 (7) TMI 1491
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.... u/s 271(1)(c) of the Act on additions of Rs. 3,55,46,576/- u/s 2(24)(x) on account of late deposit of Provident Fund as confirmed by ITAT, New Delhi without considering the facts: 1.1 That no penalty was initiated against the above-mentioned addition in the Final Order passed on 30.04.2021. 1.2 That this was a debatable issue which travelled upto Supreme Court, and finally got settled in the case of Checkmate Services Pvt. Ltd. Vs. CIT by the Hon'ble Supreme Court. 1.3 That the appellant had made a complete disclosure in the Tax Audit Report in this regard and nothing was hidden from the Department. 2. The appellant craves leave to add, alter, amend or withdraw any of the above grounds of appeal at or before the time of hearing." 3. Brief facts are that the assessee had filed its return for A.Y. 2016-17 on 30.11.2016 declaring income of Rs. 145,64,82,000/-. The case was selected for scrutiny during the course of which as reference was made to the TPO for determination of Arm's Length Price (ALP) of the international transactions entered into by the assessee with its Associated Enterprises (AE). Against the proposed adjustment u/s 92CA of t....
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.... respect of the addition of Rs. 3,55,46,576/-made under section 2(24)(x) read with section 36(1)(va) is without jurisdiction and liable to be quashed as no satisfaction for initiation of penalty proceedings was recorded by the Assessing Officer in respect of the said addition. 2. A copy of the assessment order dated 30.04.2021 is at Page Nos. 2-10 of the Paper Book. A perusal of the Final Assessment Order dated 30.04.2021 would reveal that the Assessing Officer recorded the following satisfaction: 5.4 Having regard to the addition made to the declared income of the assessee discussed above on account of TPO's adjustment, I am satisfied that the assessee company has furnished inaccurate particulars of such income, rendering itself liable for initiation of penal proceedings under section 271(1)(c) of the IT Act, 1961 for under reporting of income. The same is being initiated separately. Para 5.4 of the Order. Kindly see Page No. 9 of the Paper Book. 3. The above satisfaction leaves no room for ambiguity. The Assessing Officer specifically recorded satisfaction only in relation to the Transfer Pricing adjustment made pursuant to the order of the....
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....ue alone. The Revenue cannot subsequently expand the scope of penalty proceedings to cover an altogether different addition in respect of which no satisfaction was ever recorded. 9. The Hon'ble Supreme Court in the case of CIT v. Jai Laxmi Rice Mills (Civil Appeal No. 1457/2008 with Civil Appeal No. 3614/2012) (Copy attached at Page Nos. 33-35 the Paper Book), has held that where the requisite satisfaction is absent in the assessment order, the penalty proceedings are rendered invalid. Similarly, various Courts have consistently held that satisfaction must be specific and relatable to the particular addition on which penalty is sought to be imposed. 10. In the appellant's case, the satisfaction recorded by the Assessing Officer is expressly linked to "TPO's adjustment". Therefore, the jurisdictional requirement for initiation of penalty proceedings in relation to the disallowance of employees' contribution to the Provident Fund remains completely unfulfilled. 11. In view of the above facts and settled legal position, the penalty levied under section 271(1)(c) on the addition of Rs. 3,55,46,576/- made under section 2(24)(x) read with sectio....
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....ctional defect because it becomes impossible to ascertain whether the Assessing Officer intended to invoke the provisions relating to concealment of income, furnishing of inaccurate particulars, or under-reporting of income. 25. Such ambiguity goes to the root of the assumption of jurisdiction and renders the initiation of penalty proceedings invalid. 26. Thus, the penalty levied on the Provident Fund disallowance suffers from a double jurisdictional defect, namely: (i) no satisfaction was recorded in respect of the impugned addition; and (ii) the satisfaction that was recorded is itself vague, ambiguous and based upon an incorrect statutory charge of "under-reporting of income" under section 271(1)(c). 27. Accordingly, the penalty proceedings deserve to be held invalid ab initio and the impugned penalty is liable to be deleted on this ground alone. C> DEBATABLE ISSUE NO PENALTY IMPOSABLE It is submitted that the claim of the appellant in respect of the late deposit of employees' contribution to EPF, at the highest, was clearly a debatable issue. A number of Hon'ble Courts had earlier decided the issue in favour....
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....ant that disallowance had been made only on account of bona fide difference of opinion between the appellant and the Revenue in respect of a highly debatable/vexed legal issue. The entirety of the facts and circumstances clearly point out that the appellant did not file inaccurate particulars of income in claiming deduction of the aforesaid amount, and the disclosures made by the appellant in this regard were bona fide and were not false or fanciful. Being so, it is respectfully submitted that no penalty under section 271(1)(c) of the Act was leviable upon the appellant." 4.2 On the other hand, Ld. DR has strongly relied on the orders of the lower authorities. Written submissions of the Ld. DR are reproduced below: "1) No Penalty was initiated by the AO against the addition of Rs. 3,55,46,576/- in the final assessment order dated 30.04.2021. Reply- In this regard it is submitted that in para 6 of the final assessment order, common penalty proceedings have been initiated for all the penalty proposed for furnishing inaccurate particulars of income. So the objections raised by the Ld. AR is not acceptable and deserve to be dismissed as the penalty proceed....