PRAMOD KUMAR,NEW DELHI vs. ACIT, NAJIBABAD

The assessee has filed following grounds of appeal:-

i. That the Ld. CIT(A) has erred in upholding the penalty of Rs.4,00,000/-, imposed by the Assessing Officer, invoking the provisions of section 271(1)(c) of the Act, 1961. ii. That the Ld. CIT(A) has erred in upholding the penalty of Rs.4,00,000/- without looking into facts and circumstances of the case and relying on irrelevant judicial pronouncements. iii. That the impugned appellate order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence.

The only issue raised in the present appeal is against the levy of penalty under section 271(1)(c) of the Act. The assessee for the year under consideration, had filed the return of income declaring total income of Rs.21,62,786/-. The case of the assessee was taken for scrutiny. During the course of examination of the accounts of the assessee, it was noticed by the Assessing Officer that the assessee had credited a sum totaling Rs.2,12,000/- to his capital account with the narration, ‘Gift received’. The assessee explained that it had received gift on the occasion of his marriage anniversary.

The said levy of penalty was upheld by the CIT(A). The assessee is in appeal against the order of the CIT(A).

The issue which is raised before us is whether the penalty levied in the present case for non-recording of satisfaction in the assessment order is justified or not.

The Ld. AR for the assessee strongly opposed the levy of penalty for concealment and pointed out that in the absence of proper recording of satisfaction as to which limb of section 271(1)(c) of the Act has not been complied with by the assessee, there was no merit in the aforesaid levy of penalty. He placed reliance on the ratio laid down by the Delhi Bench of the Tribunal in Sunita Agarwal in order dated 18/12/2018.

The Ld. DR for the Revenue on the other hand, pointed out that once the penalty proceedings have been initiated, there was deemed satisfaction in the case and he referred to the provisions of section 271(1B) of the Act.

We have heard the rival contention and perused the record. The issue which is arising the present appeal is against the levy of penalty under section 271(1)(c) of the Act of non-recording of proper satisfaction by the Assessing Officer while passing the assessment order. The Assessing Officer while framing the assessment in the hands of the assessee records satisfaction for initiation of penalty proceedings by observing “action under section 271(1)(c) of the Act is initiated on this score”. Under the provisions of section 271(1)(c) of the Act, it is incumbent upon the Assessing Officer to record satisfaction to the effect that the assessee has either concealed its income or furnished inaccurate particulars of income for initiating penalty proceedings under section 271(1)(c) of the Act. Such recording of satisfaction in the case of assessee is missing and consequently, the action of the Assessing Officer in initiating penalty proceedings is invalid. In this regard, we find support from the ratio laid down by the Hon’ble Bombay High Court in CIT Vs. Shri Samson Perinchery in Income Tax Appeal No.1154 of 2014 with other Income Tax Appeals Nos.953 of 2014, 1097 of 2014 and 1226 of 2014, judgment dated 05.01.2017, wherein it was held that where initiation of penalty is on one limb and the levy of penalty is on other limb, then in the absence of proper show cause notice to the assessee, there is no merit in levy of penalty

Applying the said principle as laid down by the Hon’ble Bombay High Court in CIT Vs. Shri Samson Perinchery (supra), the requirement of the Act is to initiate penalty proceedings on account of non satisfaction of one limb especially in a case where one addition is sought to be made, for levy of penalty under section 271(1)(c) of the Act. As referred to by us in the earlier paras and also in this para, we find that there is total non recording of any satisfaction as to which limb of section 271(1)(c) of the Act has not been complied with by the assessee and in the absence of such show cause notice, where the Assessing Officer has not pointed out that the assessee has furnished inaccurate particulars of income or had concealed its income, then no penalty under section 271(1)(c) of the Act can be levied.

The learned Departmental Representative for the Revenue has placed reliance on the provisions of section 271(1B) of the Act and pointed out that once penalty proceedings has been initiated, then there is deemed satisfaction in the case. In this regard, we place reliance on the ratio laid down by the Pune Bench of Tribunal in Nandkishor Tulsidas Katore Vs. ACIT (supra), wherein reference was made to substantial questions raised before the Hon’ble High Court of Karnataka in Karnataka in CIT Vs. SSA’S Emerald Meadows (2016) 73 taxmann.com 241 (Kar) i.e. the amendment to section 271(1B) of the Act with retrospective effect and it was observed as under:-

The Hon’ble High Court had allowed the claim of assessee where the Assessing Officer had not explicitly mentioned that as to whether the penalty proceedings were initiated for concealment of income or for furnishing inaccurate particulars of income, suffers from infirmity even if it is established that the assessee had concealed the income in the facts and circumstances of the case. The Apex court has dismissed the SLP filed by the Department. Applying the said principle, we hold that even if it is established that the additional income is on account of concealment of income but while recording satisfaction for initiating penalty proceedings, the Assessing Officer should explicitly mentions as to whether penalty is being initiated for concealment or income or for furnishing of inaccurate particulars of income. In the absence of the same, notice issued in such circumstances, which also is not clear as to which limb of section 271(1)(c) of the Act is attracted, stands vitiated and the penalty order passed consequent to such notice is invalid in law. Accordingly, we delete the penalty levied under section 271(1)(c) of the Act in the case of assessee. The ground of appeal No.8 raised by the assessee is thus, allowed. Other grounds of appeal raised on merits of issue become academic and also additional ground of appeal.”

Hence, we find no merit in the plea of the learned Departmental Representative for the Revenue.

In the facts of the present case, we find that the Assessing Officer has not recorded any satisfaction as to which limb of section 271(1)(c) of the Act has not been fulfilled and have not issued show cause notice in this regard and hence, initiation of penalty proceedings are bad in law.

In view of the aforesaid proposition, we find no merit in the levy of penalty under section 271(1)(c) of the Act where the initiation of penalty proceedings is without recording of satisfaction. Accordingly, we delete the same. Hence, grounds of appeal raised by the assessee are allowed.

In the result, appeal of the assessee is allowed.