SHRI JATIN M. SHAH,,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-5(3)(4),, AHMEDABAD

The main grievance of the assessee is against the order passed by the Ld. CIT(A) in confirming the order of penalty of Rs.11,17,324/- levied by the Assessing Officer (AO) on the ground of conscious concealment of income by claiming non-genuine expenses without any evidence and without appreciating the statement of facts neither specifying the default for levy of penalty as required under the provision of law particularly when the notice of penalty was issued after the assessment order passed.

The brief facts leading to the case is this that the assessee filed return of income on 31.03.2012 declaring total income of Rs.2,23,450/-. Upon scrutiny, the Ld.AO made additions of Rs.39,00,300/-and determined income at Rs.41,23,750/- Being dissatisfied with the explanation given by the assessee explaining the cash deposit in his saving account as receipt of the firm since he being a the partner, addition as unexplained income has been made by the Ld.AO. The Ld. CIT(A) dismissed the appeal preferred by the assessee. In the assessment order, the Ld.AO initiated penalty proceeding against the assessee for concealment of particulars of income and furnishing of inaccurate particulars of income in respect of addition of Rs.39,00,000/-.

But the main grievance of the assessee is this that the assessment order was though passed on 16.1.2014, the notice for penalty was issued much after that on 20.02.2014 and thus the entire penalty proceedings is vitiated and liable to be quashed.

At the time of hearing of the instant appeal, the Ld.Representative of the assessee vehemently argued that in this particular case when the assessment order was passed on 16.01.2014 no satisfaction, however, was found by the Ld. AO for initiation of penalty proceeding during the said assessment proceeding and thus the penalty notice on 28.01.2014 is an afterthought. He further argued that it is settled principle of law that satisfaction is required to be recorded during the assessment proceeding or on the date of assessment order which is condition precedent for initiation of penalty proceeding. In absence of same the entire proceeding without complying the provision of law is arbitrary, erroneous and bad in law.

On the other hand, the Ld.Representative of the Revenue relies upon the order passed by the first appellate authority in the penalty proceeding u/s.271(1)(c) of the Act.

We have heard the Ld.Representatives appearing for the parties and perused the relevant material available on record. We find from page No.15 of the paper-book filed by the assessee deals with the notice u/s.274 r.w.s.271(1)(c) of the Act issued by the ITO, Ward-3(2), Ahmedabad admittedly issued on 28.01.2014 though the Ld.AO opined that in the course assessment proceedings before him for the AY 2011-12 it appeared that the assessee had concealed the particulars of income or furnished inaccurate particulars of such income and the same has been recorded only on 28.01.2014 much admittedly after assessment order dated 16.01.2014 which is not in terms of provisions of law and on the sole ground the entire penalty proceeding is vitiated. Failure on the part of the Ld.AO to follow the procedural compliance in issuing the notice of penalty upon recording satisfaction before or on completion of the assessment proceeding makes the penalty proceeding bad in law. We, therefore, on this ground quash the order of penalty.

In the result, appeal of the Assessee is allowed. This Order pronounced in Open Court on 17/09/2018