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Income Tax Appellate Tribunal, ‘’ SMC’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-III, Ahmedabad, dated 22/11/2013 arising in the matter of penalty order passed under s. 271(1)(c) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2005-2006.
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The assessee has raised the following grounds of appeal: 1. The Ld.CIT(A) erred on facts and in law in holding that the penalty was not barred by limitation. 2. The Ld.CIT(A) erred on facts in law in upholding the penalty levied u/s.271(1)(c) of the I.T Act of Rs.7,68,900/- The appellant craves permission to add, alter, amend or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.
The assessee has challenged the validity of the penalty levied by the AO under the provisions of section 271(1)(c) of the Act on the reasoning that there was no satisfaction/ direction for initiating the penalty recorded by the AO before levying the penalty as provided under the provisions of section 271(1B) of the Act.
The facts in brief are that the assessee in the present case is an individual and declared his income under the head salary, business and income from other sources. The assessee has filed the return of income declaring an income of Rs. 8,20,448.00 which was enhanced to ₹ 32,47,960.00 in the assessment framed under section 143(3) read with section 147 of the Act vide order dated 30th October 2009. The details of the additions made by the AO during the assessment proceedings stand as under: Total income as per statement Rs.8,20,448/- Add: Additions/disallowance as discussed above (1) Deemed dividend u/s.2(22)(e) of the Act Rs.21,71,160/- (2) Disallowance of interest paid on borrowed Rs.1,13,176/- capital for construction of house (3) Disallowance on depreciation of cars Rs.1,02,991/- (4) Disallowance of insurance amount claimed Rs.40,184/- Rs.24,27,511/- Total Income Rs.32,47,959/- i.e Rs.32,47,960/-
4.1 The AO in the assessment order has recorded to have issued penalty notice under section 274 read with section 271(1)(c) of the Act for concealment of income and furnished inaccurate particulars of income.
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4.2 The AO finally levied the penalty with respect to two additions namely on account of deemed dividend and interest on the housing loan amounting to Rs. 21,71,160.00 and 1,13,176.00 respectively. The penalty was levied by order dated 26th of March 2012 for an amount of ₹ 7,68,900.00 being hundred percent of the amount of tax sought to be evaded.
4.3 On appeal, the learned CIT-A confirmed the order of the AO by sustaining the penalty imposed by him (the AO) under the provisions of section 271(1)(c) of the Act.
Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us.
The learned AR before us filed a paper book running from pages 1 to 106 and assailed the penalty order passed by the AO which was confirmed by the learned CIT-A. The impugned order was challenged by the assessee on various counts. To this effect, the learned AR filed the written submissions which is available on record. One of the reason for challenging the penalty order by the assessee was that there was no satisfaction recorded by the AO during the assessment proceedings for initiating the penalty as mandated under the provisions of section 271(1)(c) of the Act. As per the learned AR there was only the direction recorded by the AO in the assessment order for issuing notice under section 274 read with section 271(1)(c) of the Act which cannot be equated as the satisfaction recorded by the AO in the manner provided under section 271(1B) of the Act.
On the contrary the learned DR contended that the AO in the assessment order has clearly recorded that the notice under section 274 read with section 271(1)(c) of the Act is issued separately for concealment of income and furnishing inaccurate loss of income. Thus the learned AR contended that there is no merit in the argument advanced by the learned counsel for the assessee. The learned DR vehemently supported the order of the authorities below.
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We have heard the rival contentions of both the parties and perused the materials available on record. There is no dispute to the fact that there were four additions which were made by the AO during the assessment possible, as discussed above. Generally, the AO after each and every addition/disallowance initiates the penalty either for concealment of income or for furnishing inaccurate particulars of income. However, in the case on hand, on perusal of the assessment order we note that the AO after concluding the assessment order has just recorded the following: “Issue penalty notice u/s. 274 r.w.s. 271(1)(c) of the I.T. Act for concealment of income and furnishing inaccurate particulars of income.”
8.1 From the above finding of the AO, there is no clarity or indication that the penalty was levied for all the additions which were made during the assessment proceedings. Admittedly, there were 4 kinds of additions which are made during the assessment proceedings and the same have been elaborately discussed in the preceding paragraph. Now one can interpret that in the absence of any specific finding of the AO, it can be presumed that notice under section 274 read with section 271(1)(c) of the Act was issued with respect to all the additions/disallowance made by the AO. To our understanding, this interpretation is not providing meaningful message. It is for the reason that the provisions of section 271(1)(c) of the Act authorizes the AO to levy the penalty if a satisfied that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income, then he may levy the penalty. The word used under section 271(1)(c)2 of the Act ‘May’ gives an authority to levy or not to the penalty. Since the main purpose of introduction of the penalty sections is to check tax evasion, the provisions of sections 271(1)(b), 271(1)(c), 271 A, 271B, 271BB and 273 are discretionary and a discretion is vested in the authority, by the use of word 'may', to impose or not to impose penalty when there is no loss of revenue and there is only a venial breach of the provisions of law. It has also been held in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) that a penalty will not ordinarily be imposed unless the defiance of law is deliberate. When the returned income is accepted and neither there is found to be an evasion of tax, nor the revenue is put
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to any loss, the officer is empowered not to impose any penalty. The use of the word 'may' in these sections also makes the intention of the Legislature clear in this regard. At this juncture, it is also important to note that the penalty was finally levied by the AO in the penalty order for 2 additions namely deemed dividend and interest paid on the housing loan. Thus, there was no penalty finally levied qua the depreciation disallowance and vehicle insurance expense disallowance.
8.2 Furthermore, the provisions of section 271(1B) of the Act requires the AO to initiate the penalty proceedings in the assessment order which shall be deemed to constitute the satisfaction of the AO. However, the Honourable High Court of Karnataka in the case of Safina Hotels Private Ltd versus CIT reported in 66 Taxman.com 334 states that direction to initiate proceedings under section 271(1B) of the Act should be clear and without any ambiguity. The relevant extract of the order reads as under: 10. As regards Section 271(1-B) of the Act, it clearly indicates that the assessment order should contain a direction for initiation of proceedings. Merely saying that the penalty proceedings have been initiated would not satisfy the requirement, a direction to initiate proceeding shall be clear and not be ambiguous.
8.3 In the light of the above stated discussion and after perusal of the penalty order, we note that there is no clarity for the initiation of the penalty in respect of the addition/disallowances made by the AO. To our understanding, there was the need for the AO to record the clear satisfaction with respect to each addition/disallowances made during the assessment proceedings for initiating the penalty. Accordingly, in the absence of necessary satisfaction of the AO, we hold that the penalty order is not sustainable. Thus, we reverse the order of the learned CIT-A and direct the AO to delete the penalty levied by him under the provisions of section 271(1)(c) of the Act. Hence the ground of appeal of the assessee is allowed. As regards the issue raised by the assessee on merit, we do not find any reason to adjudicate the same. It is for the reason that the assessee succeeds in his appeal
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on technical ground raised by him. Hence, the ground raised by the assessee on merit is dismissed being infructuous.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the Court on 06/05/2022 at Ahmedabad.
Sd/- Sd/- (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 06/05/2022 Manish