M/S. PRATHAMESH CONSTRUCTIONS,,SANGLI vs. ASSISTANT COMMISSIONER OF INCOME TAX,,

The assessee has raised the following grounds of appeal:- 1) On the facts and circumstances of the case and in law the Ld. CIT(A)- Kolhapur was not justified in confirming the penalty levied by the A.O. of Rs.22,75,000/- under S. 271(1)(c) of the Act. The Ld. CIT (A) ought to have considered the factual position that the assessee had agreed to declare and also declared and paid the entire taxes thereon. There was no tax payable as far as agreed addition was concerned. The penalty therefore, was not leviable. The penalty levied and confirmed by Ld. CIT(A) be quashed.

The only issue raised in the present appeal is against levy of penalty under section 271(1)(c) of the Act.

Briefly, in the facts of the case, assessment in the case of assessee was completed under section 143(3) of the Act. The expenditure claimed by the assessee for sub-contract work was held to be bogus expenditure. The Assessing Officer thus, disallowed sum of ₹ 73,56,445/-. The Assessing Officer recorded satisfaction that the assessee had concealed particulars of income and initiated penalty proceedings under section 271(1)(c) of the Act. After issuing show cause notice to the assessee, the Assessing Officer passed penalty order under section 271(1)(c) of the Act by holding that the assessee to have concealed particulars of income of ₹ 73,56,445/-. The Assessing Officer thereafter, observed that the assessee to have evaded tax by concealing such particulars amounting to ₹ 22,73,142/-. However, while levying the penalty under section 271(1)(c) of the Act, the Assessing Officer held the assessee to have furnished inaccurate particulars of income and levied penalty of ₹ 22,75,000/-.

The CIT(A) has upheld the said levy of penalty.

The assessee is in appeal against the order of CIT(A).

The first issue which has been raised before us is the jurisdictional issue that where penalty proceedings were initiated for concealment of income and were levied for ‘tax sought to be evaded by furnishing inaccurate particulars of income’, in such circumstances the penalty levied was unsustainable in law.

We have already decided similar issue in series of cases, wherein it has been held that while levying penalty for concealment under section 271(1)(c) of the Act, the Assessing Officer must record satisfaction as to whether the assessee has concealed its income or furnished inaccurate particulars of income and accordingly issue show cause notice to the assessee. Thereafter, it was incumbent upon the Assessing Officer to levy penalty on the limb, of which show cause notice has been issued. It is also incumbent upon the Assessing Officer to record satisfaction and levy penalty on one of the limbs of section 271(1)(c) of the Act and the penalty proceedings could not be initiated and completed on both the limbs especially in the case where only one addition has been made in the hands of assessee.

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 held that where there is no proper satisfaction for levy of penalty and in the absence of proper show cause notice to the assessee, there is no merit in levy of penalty.

Applying the said principle, we hold that in the present case, where the Assessing Officer has recorded satisfaction while initiating penalty proceedings for concealment of income and had finally levied penalty for furnishing inaccurate particulars of income, penalty order passed by the Assessing Officer is not sustainable in law. Accordingly, we hold so and delete penalty levied under section 271(1)(c) of the Act. The grounds of appeal raised by the assessee are thus, allowed.

In the result, appeal of assessee is allowed.