ITAT: In Absence of Proper Show Cause Notice, there is No Merit in Levy of Penalty

ITAT: In Absence of Proper Show Cause Notice, there is No Merit in Levy of Penalty

The Income Tax Appellate Tribunal (ITAT), Delhi by its two-member bench of Anil Chaturvedi (Accountant Member) and Yogesh Kumar Us (Judicial Member) has ruled 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 the present case, the assessee/appellant- Zile Singh Kashyap, is an individual and stated to be proprietor of Jai Balaji Group. Assessing Officer (AO) had noted that information was received from DDIT(Inv.) Unit, Mumbai that the firms/concerns operated by Anil Kumar Jain and Mr. Praveen Kumar Jain and their associates were providing accommodation entries to various beneficiaries.

On analysis of the bank statement of Kritvi Enterprises Pvt. Ltd. which was operated by Anil Kumar Jain and Mr. Praveen Kumar Jain, it was noticed that assessee was in receipt of bogus entries of Rs.15,00,000 on different dates during the Financial Year 2010-11.

AO noted that on perusal of data of AST Systems reveals that though the assessee had filed return of income for A.Y. 2011-12 but the bogus purchases/accommodation entries of Rs.15,00,000 was not disclosed while preparing taxable income. He was therefore of the view that Rs.15,00,000 had escaped the assessment, accordingly notice under Section 148 of the Income Tax Act, 1961 (the Act) dated 31 March, 2018 was issued and served on the assessee. AO noted that notice under Section 142(1) and 143(2) were issued but there was no representation from the side of the assessee.

Thereafter, the AO noted that since there was no representation from the assessee and the assessment was getting time barred, he passed the order under Section 147/144 of the Act vide order dated 28 November, 2018 wherein he made addition of Rs.15,00,000. On the aforesaid addition of Rs.15,00,000, AO vide penalty order passed under Section 271(1)(c) levied the penalty of Rs. 3,13,120.

Aggrieved by the order of penalty order passed by AO, assessee carried the matter before the Commissioner of Income Tax (Appeals) [CIT(A)] who vide order dated 15 November, 2019 dismissed the appeal of the assessee.

Aggrieved by the order of CIT(A), assessee, the assessee filed an appeal before the ITAT.

The grounds raised by assessee revealed that assessee was challenging the levy of penalty under Section 271(1)(c) of the Act. Vide ground No.3 it was the contention of the assessee that no charge was pointed out either in the assessment order or in the penalty order as to whether it was the case of concealment of income or furnishing of inaccurate particulars of income.

At the outset, the ITAT remarked that, “it is a settled law that while levying penalty 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 Act. The first step is to record satisfaction while completing the assessment as to whether the assessee had concealed the income or furnished inaccurate particulars of income. Thereafter, notice under Section 274 read with Section 271(l)(c) of the Act is to be issued to the assessee.”

Thus, the Assessing Officer thereafter, must levy penalty under Section 271(l)(c) of the Act for non-satisfaction of either of the limbs. While completing the assessment, the Assessing Officer must come to a finding as to whether the assessee had concealed the income or furnished inaccurate particulars of income, opined the bench.

The bench further relied on the decision passed by the Bombay High Court in CIT vs. Samson Perinchery (2017) wherein it was 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.

The ITAT was of the view that in the present case, the basic condition for levy of penalty was not fulfilled and that the penalty order suffered from non-exercising of jurisdiction power of AO.

The ITAT directed deletion of levy of penalty under Section 271(1)(c) of the Act and allowed the appeal.