In absence of finding, penalty proceedings without jurisdiction: HC Full Bench

NEW DELHI. 10th December 2008. Larger Bench of High Court deciding a bunch of Appeals vide a significant ruling AIT-2008-448-HC  has ruled   that power to impose penalty under Section 271 of the Act depends upon the satisfaction of the Income Tax Officer in the course of the proceedings under the Act. It cannot be exercised if he is not satisfied and has not recorded his satisfaction about the existence of the conditions specified in clauses (a), (b) and (c) before the proceedings are concluded. It is true that mere absence of the words “I am satisfied” may not be fatal but such a satisfaction must be spelt out from the order of the Assessing Authority as to the concealment of income or deliberately furnishing inaccurate particulars. In the absence of a clear finding as to the concealment of income or deliberately furnishing inaccurate particulars, the initiation of penalty proceedings will be without jurisdiction

In all these cases, the Income Tax Appellate Tribunal has either deleted or affirmed the deletion of penalty levied upon the assessee under Section 271(1)(c) of the Income Tax Act, 1961. The Tribunal has, while doing so, relied upon the decision of the Division Bench of High Court in CIT v. Ram Commercial Enterprises Ltd. and held that the authority initiating the penalty proceedings had not recorded its satisfaction regarding concealment of income or furnishing of inaccurate particulars thereof by the assessee. The Revenue assailed the correctness of the said orders in these appeals. According to the Revenue, penalty proceedings initiated by the competent authority should be deemed to be valid so long as the satisfaction of the authority was discernible from the order made by it. The fact that the authority had not used the words “I am satisfied that the assessee has concealed his income or furnished inaccurate particulars thereof”, would be of no consequence. The true test is whether a reading of the order demonstrates application of mind by the authority to the question of concealment and whether satisfaction about such concealment or furnishing of inaccurate particulars is discernible from the order. In the light of these submissions, the Division Bench admitted the appeals for determination of the following substantial question of law:

“Whether satisfaction of the officer initiating the proceedings under Section 271 of the Income Tax Act can be said to have been recorded even in cases where satisfaction is not recorded in specific terms but is otherwise discernible from the order passed by the authority”

Keeping in view the decision of High Court in CIT v. Ram Commercial Enterprises Ltd. and other cases on the subject, the Division Bench felt that it would be more appropriate if the question is authoritatively determined by a Full Bench of High Court and accordingly the matter was referred to the Full Bench.

(Click here for full text of Ruling AIT-2008-448-HC)

(Source: Allindiantaxes)

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