S. 271(1)(c) penalty not valid if “satisfaction” not recorded in the assessment order
The AO passed an order u/s 143(3) in which he took the view that the assessee had wrongly claimed deduction for a provision made towards non-saleable goods. This was upheld by the CIT(A) & the Tribunal. The AO also imposed penalty u/s 271(1)(c) for concealment / furnishing of inaccurate particulars of income. The CIT (A) upheld it. Before the Tribunal, the assessee argued that penalty was not imposable because (a) in the assessment order, the AO had not recorded a finding that there was concealment/ furnishing of inaccurate particulars of income and so there was no “satisfaction” and (b) there was no finding in the quantum order that the assessee’s claim was not bona fide and so penalty was not imposable. HELD upholding the assessee’s plea:
(i) Despite the insertion of sub-section (1B) to s. 271, the necessity for “prima facie satisfaction” for initiation of penalty proceedings continues to be a jurisdictional fact. The AO has to record the finding that there was concealment of income. In the s. 143(3) assessment order, the AO has not mentioned a word that there was furnishing of inaccurate particulars or concealment of income. He made the addition merely on the ground that the assessee was not able to produce any evidence for writing off of the amount in the books of account. As the satisfaction that the assessee had concealed income or furnished inaccurate particulars of such income is not discernible from the assessment order, the penalty order suffers from lack of jurisdiction to impose penalty (Madhu Shree Gupta 317 ITR 107 (Del) followed);
(ii) It is settled law that assessment proceedings and penalty proceedings are separate proceedings and findings arrived at in quantum appeal may have persuasive value but are not conclusive for levying penalty. In the quantum appeal there was no finding of the Tribunal that the assessee’s claim was not bona fide or that there was any fraud or gross or willful neglect on its part;
(iii) Penalty should ordinarily not be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty should not be imposed merely because it is lawful to do so. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. On facts, the assessee’s act of writing off un-saleable goods cannot be said to be not bona fide and it cannot be said to be furnishing of inaccurate particulars of income.