Income Tax Appellate Tribunal

Lakshmi Rani vs. ITO, Ward-43(5), New Delhi

MANU/ID/0847/2021

27.09.2021

Direct Taxation

Where initiation of penalty is one limb and the levy of penalty is on other limb, then in the absence of proper show cause notice to the assessee, there is no merit in levy of penalty

Assessee is an individual stated to be engaged in the business of financial services and facilitates loans to various clients from financial institutions. Assessee filed her return of income for A.Y. 2015-16 on 27.10.2015 declaring total income of Rs.14,25,300. The case was selected for scrutiny under the CASS. Notices under Section 143(2) and 142(1) of the Income Tax Act, 1961 (IT Act) were issued from time to time. In response to these notices Learned Counsel for the assessee attended the proceedings and filed detailed as called for from time to time. Thereafter, assessment was framed under Section 143(3) of the IT Act vide order and the total income of the assessee was determined at Rs.24,52,374. On the addition of Rs.10,27,074 made, AO vide order levied the penalty of Rs.3,17,366 under Section 271(1)(c) of the Act.

Aggrieved by the penalty order of AO, assessee carried the matter before the CIT(A) who dismissed the appeal of the assessee. Aggrieved by the order of CIT(A), assessee is now before present Tribunal.

The issue in the present case is with respect to levy of penalty under Section 271(1)(c) of the IT Act. The penalty of Rs.3,17,366 under Section 271(1)(c) of the IT Act has been levied on the addition of Rs.10,27,074 made by AO. The perusal of the assessment order passed under Section 143(3) of the Act reveals that AO has recorded the satisfaction that assessee has concealed the income. Thereafter, in the penalty order passed under Section 271(1)(c) of the IT Act, AO had levied penalty for furnishing of inaccurate particulars of income. It is a settled law that while levying penalty for furnishing of inaccurate particulars of income, the AO has to record satisfaction and thereafter come to a finding in respect of one of the limbs, which is specified under Section 271 (1)(c) of the IT Act.

The first step is to record satisfaction while completing the assessment as to whether the assessee had concealed her income or furnished inaccurate particulars of income. Thereafter, notice under Section 274 read with Section 271(l)(c) of the IT Act is to be issued to the assessee. The Assessing Officer thereafter has to levy penalty under Section 271(l)(c) of the IT Act for non-satisfaction of either of the limbs. While completing the assessment, the Assessing Officer has to come to a finding as to whether the assessee has concealed her income or furnished inaccurate particulars of income. The Hon'ble Bombay High Court in CIT vs Samson Perinchery and Lakshmi Rani vs ITO has held that, where initiation of penalty is one limb and the levy of penalty is on other limb, then in the absence of proper show cause notice to the assessee, there is no merit in levy of penalty.

In view of the facts of the present case in the light of the aforesaid decision of Hon'ble Bombay High Court in the case of CIT Vs. Samson Perinchery, present Tribunal is of the view that in the present case, the basic condition for levy of penalty has not been fulfilled and that the penalty order suffers from non-exercising of jurisdiction power of AO and therefore penalty order cannot be upheld. Appeal of the assessee is allowed.

Tags : Assessment Penalty Legality

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