2007 (12) TMI 257 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty u/s 271(1)(c) for concealment of income/filing of inaccurate particulars of income.
2. Recording of requisite satisfaction by the Assessing Officer for initiating penalty proceedings.

Summary:

Issue 1: Levy of Penalty u/s 271(1)(c)

The appellant, a private limited company, faced penalty orders u/s 271(1)(c) for assessment years 1999-2000, 2000-01, and 2002-03. The penalty was based on additions made during assessments framed u/s 153A read with section 143(3) of the Act. The additions included extra income of Rs. 5,67,926 not recorded in regular books and cash expenditure of Rs. 56,085 added u/s 40A(3). The Assessing Officer levied a penalty of Rs. 2,08,480 for concealment of income/filing of inaccurate particulars. The assessee challenged the penalty on both legal and merit grounds.

Issue 2: Recording of Requisite Satisfaction

The Tribunal examined whether the Assessing Officer recorded the requisite satisfaction for initiating penalty proceedings. The Tribunal noted that the Assessing Officer merely mentioned that penalty proceedings were being separately initiated without a definite conclusion of concealment or furnishing inaccurate particulars. The Tribunal referred to several judicial precedents, including the Hon'ble Supreme Court's rulings in Dilip N. Shroff v. Jt. CIT and T. Ashok Pai v. CIT, which emphasized that penalty proceedings are quasi-criminal and require a heavy burden of proof on the Department to establish concealment. The Tribunal found that the Assessing Officer failed to record specific satisfaction, which is a jurisdictional defect that cannot be cured.

The Tribunal also cited decisions from the Hon'ble Delhi High Court in CIT v. Ram Commercial Enterprises Ltd. and Diwan Enterprises v. CIT, which held that the Assessing Officer must record satisfaction during assessment proceedings before initiating penalty proceedings. The Tribunal concluded that the absence of specific satisfaction in the assessment order and notice u/s 271(1)(c) invalidated the penalty proceedings.

In light of these findings, the Tribunal quashed the penalty orders for all three assessment years and allowed the assessee's appeals.

Conclusion:

The Tribunal allowed the appeals for assessment years 1999-2000, 2000-01, and 2002-03, quashing the penalty orders due to the Assessing Officer's failure to record the requisite satisfaction for initiating penalty proceedings u/s 271(1)(c).