Delhi ITAT Removes Tax Penalty, Not Completed Basic Condition U/S of 271(1)(c)

The Income Tax Appellate Tribunal (ITAT), Delhi bench, in response to an appeal, after finding that the basic condition as specified under Section 271(1)(c) is not fulfilled, removed the penalty being levied by the Revenue.

The Delhi ITAT made the decision when an assessee filed an appeal regarding the directive against the order dated 15.11.2019 passed by the Commissioner of Income Tax (appeals), Delhi, following Section 250 of the Income Tax Act, 1961, for Assessment Year 2011-12.

The assessee appealed on the grounds of the facts and circumstances of the case, the A.O. has made a mistake in imposing a penalty without providing the assessee with a relevant notice. Moreover, the A.O. has made the mistake of imposing a penalty because the quantum order charge on the penalty as was commenced has not been stated whether it was for concealing income or for showing inaccurate particulars of income. In summary of the case, the assessee was an individual proprietor of the Jai Balaji Group.

According to the information received from DDIT(Inv.) Unit, Mumbai, the reason behind the issue is that it was brought to the notice of the AO that the firms run by Anil Kumar Jain and Mr Praveen Kumar Jain and their associates, were providing accommodation entries to various beneficiaries.

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Analysis of Kritvi Enterprises Pvt. Ltd.’s bank statement, which was run by Anil Kumar Jain and Mr Praveen Kumar Jain, found that the assessee had received inaccurate entries of Rs. 15,00,000 on various dates in the Financial Year 2010–11. The AO also observed that although the assessee had filed an income tax return for the AY 2011–12, as per the inspection of the data of AST systems, the fake purchases/accommodations entries totalling Rs. 15,00,000/- were not revealed while preparing taxable income.

He, for that reason, considered that Rs. 15,00,000/- had avoided the assessment and accordingly, he issued a notice under Section 148 of the Income Tax Act, dated 31.03.2018, which was served on the assessee.

The AO observed that notice was issued under Sections 142(1) and 143(2), however, the assessee did not make any representations. After that, in the course of not finding any representation and the assessment was getting time-barred. He then ordered an addition of Rs. 15,00,000/-, vide order, dated 28.11.2018 under Section 147/144 of the Income Tax Act, 1961.

With the addition of Rx. 15,00,00/-, the AO vide penalty order passed under the Section 271(1)(c), imposed the penalty of Rs. 3,13,120/- leaving the assessee aggrieved.

Aggrieved by the penalty order issued by the Assessing Officer, the assessee took the case before the CIT(A), whose vide order dated 15.11.2019, rejected the assessee’s appeal. It resulted in the assessee deciding to file an instant appeal before the Delhi ITAT.

Examining the material available on record along with hearing the contentions as presented by Ms Sangeeta Yadav, the Sr. D.R., in the interest of the Revenue. Because there was no one present on behalf of the assessee so the Delhi ITAT observed that it is an established law that while levying a penalty the AO has to record satisfaction and thereafter come to a finding concerning one of the limbs, which is stated under the Section 271(1)(c) of the Act. The first move is to record satisfaction while completing the assessment as to whether the assessee withheld income or provided inaccurate information about their income. After that, a notification under Section 274 read with Section 271(1)(c) of the Act is to be sent to the assessee.

In case, any of the limbs is not satisfied, the Assessing Officer then has to levy a penalty under Section 271(1)(c) of the Act. The assessing officer must conclude if the assessee has falsified their income or concealed it together during the completion of the assessment. The Hon’ble Bombay High Court has ruled in CIT vs. Samson Perinchery (2017) 392 ITR 4 (Bom) that where a penalty initiated is one limb and levied on other limbs, there is no merit for the levy of a penalty in the absence of a proper show cause notice to the assessee, the coram of Yogesh Kumar US, the judicial member, and Anil Chaturvedi, the accountant member added.

Therefore, the ITAT in the end ruled considering the facts of the present case in view of the decision of Hon’ble Bombay High Court in the matter of Samson Perinchery (supra) that in the present case, the fundamental circumstances for levy of penalty has not been fulfilled and that the penalty order are affected by AO not exercising its authority power. We believe that the conditions set forth under Section 271(1)(c) for the levy of penalty are not attractive in the present case after considering all of the aforementioned facts. Consequently, we order its removal. The grounds of the assessment are valid.