AO Fails to Clarify Concealment of Particulars of Income or Furnished Inaccurate Particulars: Delhi HC quashes 300% Penalty [Read Order]

The Delhi High Court quashed the 300% penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961 on grounds that the Assessing Officer (AO) failed to clarify the concealment of particulars of Income or furnished inaccurate particulars.

The High Court allowed the condonation of delay of filing 220 days in re-filing the appeal submitted by the Revenue. The appeal concerns Assessment Year (AY) 2004-05 and is directed against the order dated 30.03.2022 passed by the Income Tax Appellate Tribunal (ITAT).

The matter under consideration before the Tribunal, which was also raised before the Court was whether the penalty proceedings are defective due to the absence of specification in the notice about which provision of Section 271(1)(c) of the Income Tax Act was invoked. In simpler terms, it questions whether the proceedings were initiated against the respondent/assessee for concealing income or providing inaccurate particulars.

A plain reading of Section 271(1)(c) of the Income Tax Act would show that it adverts to two circumstances, in which the penalty proceedings can be initiated against an assessee. The first circumstance concerns concealment of particulars of income, while the second circumstance relates to furnishing of inaccurate particulars.

The record showed that the Assessing Officer (AO), in the second round, that is, once the matter was remanded to him pursuant to the order passed under Section 264 of the Income Tax Act, had levied penalty at the rate of 300% via order dated 31.03.2017. This order was passed on the back of the assessment order dated 21.03.2013.

The respondent/assessee carried the matter in appeal to the Commissioner of Income Tax (Appeals) [CIT(A)]. The first appellate authority via order dated 26.12.2018 scaled down the rate of penalty to 150%. It is in this backdrop, that both the appellant/revenue and the respondent/assessee preferred appeals with the Tribunal.

The Tribunal ruled in favour of the respondent/assessee, having regard to the fact, that the AO had not arrived at a clear satisfaction as to which limb of Section 271(1)(c) was applicable, while passing the penalty order. In other words, according to the Tribunal, there was no clarity, whether the respondent/assessee had concealed the particulars of its income, or furnished inaccurate particulars.

The bench of Justice Rajiv Shakhder and Justice Girish Kathpalia, relying on the ECS Ltd.’s case, observed that the Assessing Officer has not recorded his satisfaction in explicit terms, the assessment orders should indicate that the Assessing Officer had arrived at such a satisfaction.

Thus, the bench opined that no substantial question of law arises for our consideration and closed the appeal.

To Read the full text of the Order CLICK HERE

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