TaxTMI 
TaxTMI 
2026 (8) TMI 879
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....mutandis for AY 2014-15 to AY 2016-17. CO of the assessee for all the assessment years are supporting the impugned order of the Ld. CIT(A), hence, CO of the assessee for AY 2013-14 will be considered along with appeal of the Revenue for AY 2013- 14. 3. The grievances involved in the grounds raised by the Revenue is against the action of the Ld. CIT(A) deleting the penalty levied by the AO u/s 271(1)(c) by holding that penalty was not validly initiated by the AO which rendered the penalty order(s) as bad in law as well as on merits of the penalty levied by the AO. Since Revenue has challenged the impugned action of Ld CIT(A) allowing the legal issue raised by the assessee, holding the initiation of penalty proceedings itself as invalid, which strikes at the root of the AO levying penalty, we will address it first. 4. The brief facts as culled out from the record are that, a search and seizure action u/s. 132 of the Act was conducted in the case of M/s. Jayapriya Company group on 16.12.2021. The assessee-firm is engaged in the business of real estate, whereunder it purchases lands, develops them into saleable plots and sells the said plots. In the course of the search, it was f....
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....penalty to be bad in law. The Ld. CIT(A), by the common impugned order dated 23.12.2025, allowed the additional ground and directed deletion of the penalties for all four years, holding that there was no recording of satisfaction in the body of the assessment orders as to concealment; and that the notices u/s. 274 having been issued only on 31.03.2024, the penalty proceedings had not been initiated during the course of the assessment proceedings. It was further held by the Ld. CIT(A) that, where the return filed u/s. 148 of the Act had been accepted in full, the AO had failed to discharge the burden of proving concealment. Aggrieved, the revenue is in appeal before us, and the assessee has filed cross objections in support of the impugned order. 7. The Ld. CIT, DR appearing for the Revenue submitted that the provisions of Section 271(1)(c) of the Act only mandates recording of satisfaction by the AO in the course of the assessment proceedings; which is the jurisdictional requirement and that the initiation, on the other hand, is the formal act of acting upon that satisfaction through a notice u/s. 274 of the Act, and the statute prescribes no mandate as to when such notice must ....
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....) the said order must contain a direction for initiation of penalty proceedings under clause (c) of sub-section (1). According to him, in the present case neither condition was met. He submitted that the income returned u/s 148 of the Act was accepted in its entirety and the column for additions in the computation reads "NIL"; and that the assessment order contains no direction whatsoever. The Ld. AR emphasized that the recording that "penalty proceedings u/s. 271(1)(c) will be initiated separately for concealing particulars of income" is in the simple future passive. It conveys, at highest, an intention to do something in future which may or may not come to pass. It is neither a direction nor a positive step, and it does not record any satisfaction. For this, he relied on the decision of Hon'ble Delhi High Court in the case of CIT v. Rajinder Kumar Somani (125 ITR 756) and Hon'ble Karnataka High Court in the case of CIT v. MWP Ltd. (264 CTR 502). The Ld. AR submitted that the contrary approach of the AO was discernible within the four corners of the very same assessment order. He pointed out that, while dealing with the violation of section 269SS, the AO set out the material found....
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....he above issue, Let us first have look at the relevant provisions of the Act. Section 271(1) of the Act opens with the words "If the Assessing Officer ... in the course of any proceedings under this Act, is satisfied that any person .... he may direct that such person shall pay by way of penalty....". It is thus observed that, the satisfaction of the AO, arrived at in the course of the proceedings before him, is the sine qua non for the assumption of jurisdiction to levy penalty. The Hon'ble Supreme Court in the case of CIT v. S.V. Angidi Chettiar(supra) has held that the satisfaction of the officer is a condition precedent to the exercise of the power, and must exist before the proceedings before him are concluded. Likewise, the Hon'ble Apex Court in the case of D.M. Manasvi v. CIT (supra) observed that, the issue of notice is a consequence of the satisfaction and that the two cannot be equated. The proposition which emanates from this judgment which, we may observe at once, presupposes the existence of the satisfaction and does not dispense with it. In light of the foregoing decisions, Section 271(1B), was inserted by the Finance Act, 2008 with retrospective effect from 01.04.198....
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....ction on the face of the record becomes decisive. It is seen from the records that, the computation of total income in paragraph 9 of the assessment order shows that the total income was assessed at the same sum which was declared in return filed u/s. 148 of the Act, and that there was no separate addition or disallowance in the assessment order. This factual position is identical for the other three assessment years as well. Prima facie therefore, there is force in the Ld. AR's plea that, the first of the two conditions prescribed by section 271(1B) fails at the threshold, and thus the deeming fiction set out therein is not attracted. 14. The Ld. CIT, DR however sought to address the above, by contending that recourse to section 271(1B) is not necessary for the reason that a valid satisfaction existed in the assessment order, which we now proceed to examine. The case of the Revenue rests on the AO's observation viz., "Penalty proceedings u/s 271(1)(c) will be initiated separately for concealing particulars of income." According to us, the expression "will be initiated" is in the simple future tense. Grammatically and legally, it speaks of an event yet to occur. It records a pro....
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....he purpose. We are unable to accept this submission. As explained above the language of section 275 envisages some positive step on the part of the ITO being taken before the completion of the assessment. In our opinion It not enough for the officer to record that penalty proceedings are to be or will be initiated separately. There should be some other step such as an actual direction to the office to issue a penalty notice (which thereafter needs only ministerial compliance), the actual issue of a penalty notice, a reference to the IAC or some other similar action. It is also not without significance that in this case, though the assessment was completed on November 28, 1963, the penalty notices were issued by the ITO only as late as December 16, 1963. As rightly pointed out by the Tribunal, in cases where the ITO has initiated action during the assessment proceedings, the usual course is for the penalty notices to be issued and served simultaneously with the assessment order and the demand notice. In the present case, even that was not done. The penalty notices were served upon the assessee only after the service of the assessment order and the demand notice. All these circumstan....
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....ion, the deeming provision is not attracted. Therefore the conditions prescribed under Section 271(1)(c) of the Act, is not attracted. Therefore the Tribunal was justified in setting aside the order passed by the Assessing Authority as well as the Appellate Authority, imposing penalty. No merits. Dismissed. The substantial question of law is answered in favour of the assessee and against the Revenue." 17. We observe that the case of the assessee is on a better footing. In the above decision (supra), the present indicative "are initiated" was held insufficient, and therefore the future tense "will be initiated" employed in the present case does not meet the statutory requirement. 18. Before us, the Ld. CIT, DR had vehemently sought to distinguish the above judgments (supra) by stating that in these judgments the AO had merely recorded that penalty proceedings were being initiated separately, without any reference to concealment, whereas in the present case the AO added the words "for concealing particulars of income". We have given due consideration to this submission but are unable to accept it. Firstly, the addition of the words "for concealing particulars of income" does no....
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.... to the distinction between taking a positive step and proposing to take one. The fact that she did not do so in respect of section 271(1)(c) cannot be treated as an accident of drafting to be repaired by us. Lastly, even the subsequent conduct of the AO is consistent with the inevitable conclusion that no initiation took place during the assessment proceedings. Had the AO directed the issue of notices, or intended anything beyond a future contingency, the notices would have accompanied the assessment orders and the demand notices in the usual course. However, they did not. They were issued much later only on 31.03.2024. This delay, in light of the decision of Hon'ble Delhi High Court (supra) supports the action of the Ld. CIT(A). 20. Much reliance was placed by the Ld. CIT, DR upon Explanation 5A to Section 271(1)(c) of the Act. According to the Ld. CIT, DR; the search having taken place on 16.12.2021 and income based on entries in books of account and other documents for previous years ended before the date of search having been offered only in returns filed after the date of search, the assessee is deemed to have concealed the particulars of its income, so that no further sat....
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....se penalty or otherwise depending upon facts and circumstances of each case and that the same is not automatic. At this juncture, we also find force in the submission of the Ld. AR that, Explanation 5A was not even referred to by the AO in the assessment order, nor was it the basis upon which the AO recorded the impugned sentence in dispute. Instead, it has been invoked for the first time by the Ld. CIT, DR. There is merit in Ld AR's plea that the existence of jurisdictional fact cannot be laid in arguments, but it is required to be demonstrated that they exist on the record at the time the jurisdiction is assumed. 22. Coming to the decisions relied upon by the Ld. CIT, DR. We have already taken note of the propositions laid down in the decisions of CIT v. S.V. Angidi Chettiar (supra), D.M. Manasvi v. CIT (supra) & Madhushree Gupta v. Union of India (supra) earlier, which we find is of no assistance to the Revenue. The decision of Hon'ble Supreme Court in the case of Union of India v. Dharmendra Textile Processors (306 ITR 277) holds that penalty u/s. 271(1)(c) is a civil liability and that mens rea is not required to be established. It is entirely silent on the question of the ....
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....he penalty notice simultaneously on the same date. Further, reliance was placed on the decision of the Hon'ble Delhi High Court in CIT v. Rajendra Kumar Somani [(1980) 125 ITR 756 (Del)], where the Court had occasion to interpret the phrase "during the course of assessment proceedings", holding that penalty initiation must form part of the assessment process and cannot be initiated after its conclusion. 2.1.7 The undersigned, on careful examination of the assessment records observed that in the present case, although the assessment orders for AY(s) 2013-14, 2014-15, and 2016-17 were passed on 12.03.2024 and for AY 2015-16 on 22.03.2024, the notice(s) for initiation of penalty proceedings were issued only on 31.03.2024. There is no mention in the body of the assessment orders regarding the satisfaction of the AO to initiate penalty proceedings u/s 271(1)(c) of the Act, nor any reference to an annexed or simultaneously issued notice. 2.1.8 The Karnataka High Court in the case of CIT v. Manjunatha Cotton and Ginning Factory [(2013) 359 ITR 565 (Karn)] has held that recording of satisfaction for initiation of penalty must be evident from the assessment order itself, a....