DILIP KUMAR AND SONS,CHENNAI vs. DCIT / ACIT, CENTRAL-1(2), CHENNAI

1. This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-18, (hereinafter in short ‘the Ld.CIT(A)’), Chennai, dated 29.08.2024 for the Assessment Year (hereinafter in short ‘AY’) 2016-17 confirming the penalty levied by the AO u/s.271(1)(c) of the Income Tax Act, 1961 (hereinafter in short ‘the Act’).

The brief facts are that the assessee filed its return of income (RoI)

in the status of HUF admitting total income at Rs.7,18,690/- on 31.03.2017 which was selected for limited scrutiny under CASS and the AO passed u/s.143(3) of the Act dated 30.11.2018 making an addition of Rs.20 lakhs u/s.68 of the Act. On appeal, the Ld.CIT(A) by order dated 22.08.2022 dismissed the assessee’s appeal. The assessee preferred an appeal before the Tribunal and the Tribunal by order dated 10.03.2023 dismissed the assessee’s appeal.

Thereafter the AO issued notice u/s.274 r.w.s.271(1)(c) of the Act on 29.08.2023 and finding no response from the assessee has passed the penalty order on 24.10.2023 levying penalty of Rs.6,18,000/- for concealment of income. On appeal, the Ld.CIT(A) has confirmed the action of the AO.

Aggrieved, the assessee is before us and has raised a legal issue that the AO in the assessment order has not recorded his satisfaction that assessee has violated section 271(1)(c) of the Act, which warrants levy of penalty u/s.271(1)(c) of the Act. Hence, according to the Ld.AR, the penalty levied is unsustainable.

The Ld.AR assailing the impugned action of the Ld.CIT(A) submitted that it is well settled that the penalty proceedings are distinct from assessment proceedings and that both are independent proceedings and that mere confirmation of additions in quantum proceedings can’t per-se, lead to confirmation of penalty; and that the assessee is at liberty to lead fresh evidence during penalty proceedings to prove that there was neither concealment of particulars of income nor furnished any inaccurate particulars of income. Further, according to the Ld.AR, the first condition before initiating penalty by AO under sub-clause (c) of sub-section (1) of section 271 of the Act is to record his satisfaction in the course of assessment proceedings that assessee has concealed the particulars of his income or furnished inaccurate particulars of such income, thereafter only the AO has to issue proper notice making it clear the specific fault committed by assessee and give proper opportunity u/s.274 of the Act and then levy penalty. Thus, according to him, the penalty proceedings have their foundation in the assessment order. However, in this case, according to the Ld.AR, the AO has not made any mention about his satisfaction of initiating penalty proceedings against the assessee and drew our attention to the assessment order dated 30.11.2018 wherein the AO has not made any endorsement to the effect that he was satisfied that assessee has concealed the particulars of his income or furnished inaccurate particulars of such income which warrants penalty being levied u/s.271(1)(c) of the Act..

We find that in the assessment order passed u/s.143(3) of the Act dated 30.11.2018, the AO has not recorded his satisfaction in the course of assessment proceedings/order that he was satisfied that assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. Omission to record his satisfaction about assessee having committed the faults as given in clause (c) of section 271(1) of the Act, vitiates the penalty levied on assessee dated 24.10.2023 [refer Hon’ble Supreme Court decision in the case of PCIT v. Golden Peace Hotel & Resorts reported in [2021] 124 taxmann.com 249 (SC)]. Therefore, assessee succeeds and the penalty levied by AO of Rs.6,18,000/- need to be deleted.

Before parting, we would like to deal with the contention of the Ld DR that the aforesaid legal issue was raised before the Ld.CIT(A); and that he repelled the same in view of the amendment brought in by Finance Act, 2008, by observing that after sub-section (1B) was inserted [by the Finance Act, 2008] in section 271 of the Act, if the AO gives direction in the assessment order for initiation of penalty u/s.271(1)(c) of the Act, then it shall be deemed as satisfaction of AO for initiating penalty u/s.271(1)(c) of the Act; and hence the Ld CIT(A) rejected the legal issue raised by assessee which action should be upheld. However, we don’t countenance the aforesaid view of the Ld.CIT(A) in the facts of the present case for the simple reason that there is no such direction given by the AO discernable from perusal of the assessment order dated 30.11.2018 to initiate penalty proceedings u/s.271(1)(c) of the Act, therefore, sub-section (1B) of section 271 of the Act, won’t come to the rescue of the Revenue. As noted, a perusal of the assessment order u/s.143(3) of the Act dated 30.11.2018 would reveal that there is no endorsement to the effect given by the AO for initiation of penalty u/s.271(1)(c) of the Act which could have attracted deeming provisions under Sec.271(1B) of the Act, therefore, the Ld.CIT(A) erred in rejecting the legal issue raised by the assessee, and hence, the assessee succeeds on the aforesaid legal issue and penalty levied is directed to be deleted.

In the result, appeal filed by the assessee is allowed.