Imposition of Penalty u/s 271(1) of Income Tax Act can't be made without Proper Record of Satisfaction: ITAT [Read Order]

The Hyderabad bench of the Income Tax Appellate Tribunal (ITAT) held that the imposition of the penalty under Section 271(1) of the Income Tax Act, 1961 cannot be made without a proper record of satisfaction.

The assessee is a company who filed its original return of income admitting a total income of Rs.3,86,91,380/- under the normal provisions and income of Rs.3,84,47,420/- as per the provisions of Section 115JB of the Income Tax Act. The case was selected for scrutiny and assessment was completed under Section 143(3) of the Income Tax Act.

The notice under Section 153A of the Income Tax Act was issued to the assessee. In response to the notice, the assessee filed the return of income admitting a total income of Rs.3,86,91,380/-.

The Authorized Representative submitted that the PCIT had issued the show cause notice under Section 263 of the Income Tax Act revising the assessment order as the Assessing Officer has not initiated the penalty under Section 271(1) of the Income Tax Act.

It was submitted that the PCIT cannot direct the initiation of proceedings after the lapse of the statutory period of 6 months from the end of the assessment year, as the penalty proceedings are required to be concluded within the period of 6 months.

It was secondly submitted that the PCIT cannot substitute or record his satisfaction for the initiation of the penalty. The Authorized Representative contended that the satisfaction must be recorded by the Assessing Officer and not by the PCIT. If the PCIT intended to initiate the penalty, he should have done so independently by recording his own satisfaction and initiate the penalty.

The Departmental Representative had submitted that the contentions of the assessee are not maintainable. He drew strength from the provision of Section 263 read with Sections 270A and 271 of the Income Tax Act.

It was further submitted that the penalty proceedings can be initiated by the PCIT and there is no illegality in setting aside the order passed by the Assessing Officer for the limited purposes of initiating the penalty under Section 271(1)(c) of the Income Tax Act.

The Two-member bench comprising of R.K. Panda (Vice-President) and Laliet Kumar (Judicial member) held that the law does not permit the delegation of authority by the PCIT to Assessing Officer for the purpose of imposition of penalty.

Since no satisfaction has been recorded by the PCIT, therefore, it would not be appropriate for him to direct the Assessing Officer to record his satisfaction and initiate the penalty proceedings against the assessee.

Thus, the appeal of the assessee was allowed.

To Read the full text of the Order CLICK HERE

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