SMT. DR. JATINDER BHATIA,NOIDA vs. ACIT, NOIDA

The appeal filed by assessee is against order of CIT(A)-1, Noida dated 30.11.2015 relating to assessment year 2006-07 against penalty levied under section 271(1)(c) of the Income-tax Act, 1961 (in short “Act”).

The preliminary issue raised in the present appeal is against the non-recording of satisfaction by the Assessing Officer while initiating the penalty proceedings u/s 271(1)(c) of the Act.

On the perusal of record and after hearing both the authorized representatives, we find that the issue raised by the assessee vide Ground of appeal No.2 before us is the jurisdictional issue and we proceed to decide the same. The Assessing Officer had completed the assessment u/s 143(3) of the Act in which the long term capital gain in the hands of the assessee were recomputed. The second addition which was made was on account of repayment of unsecured loans being out of undisclosed funds available with the assessee. While making both these additions, the Assessing Officer added the amount and observed “………………for which penalty proceedings u/s 271(1)(c) are being initiated separately.” The AO has failed to record the satisfaction as to which limb of section 271(1)(c) of the Act has not been fulfilled by the assessee. The issue thus arises is that in the absence of recording such satisfaction, the penalty proceedings are to be held to be correctly initiated.

Penalty for concealment is leviable where the assessee had either concealed its income or furnished inaccurate particulars of income. The AO while completing the assessment has to record satisfaction in this regard, in order to show cause the assessee as to which limb to section 271(1)(c) of the Act has not been satisfied by it. This is the basic condition of the aforesaid section. On perusal of the assessment order passed for the instant assessment year reflects no such satisfaction has been recorded. In the absence of the same, the assessee was not in a position to meet the requirements of the section. Merely, an order issuing notice u/s 274 r.w.s 271(1)(c) of the Act do not meet the conditions of the said initiation of penalty proceedings. In the absence of the same, there is no merit in the penalty order passed in the case. In this regard, we find support from the ratio laid down by the Hon’ble Bombay High Court in CIT Vs. Shri Samson Perinchery (2017) 392 ITR 4 (Bom). We hold that in the absence of recording proper satisfaction, while initiating the penalty proceedings u/s 271(1)(c) of the Act, order passed u/s 271(1)(c) of the Act suffers from infirmity. Hence, the same is cancelled. Ground of appeal raised by the assessee are thus allowed.

In the result, the appeal of the assessee is allowed.