INCOME TAX ACT, 1961

Penalty under section 271(1)(c)- Concealment-Non-availability of required documents-Claim of depreciation on solar equipment

Assessee-company, engaged in the business of running a hotel, filed its return of income for the relevant assessment year claiming 50 per cent depreciation on the solar equipment acquired by it for its hotel project. It filed revised return giving up its claim for depreciation as the company, which supplied the solar equipment. Assessee expressed its inability to produce evidence for the equipment supplied as it did not properly maintain its records and books and. AO accepted the revised return but imposed penalty under section 271(1)(c) and denied the contention of the assessee that it was a voluntary declaration. CIT(A) as well as Tribunal was upheld the order of AO. Held: It was clear from section 271(1) that AO, in the course of any proceedings was empowered to levy penalty in the circumstances specified in clauses (a) to (d), which included concealment of particulars of income or furnishing inaccurate particulars of income. However, the language of section 271(1) itself made it clear that recording of satisfaction of concealment of income by a person or furnishing inaccurate particulars of such income is a condition precedent for levying penalty invoking the power under section 271(1). [Para 14]

AO had to form his own opinion and record his satisfaction of concealment of income or furnishing inaccurate particulars of income before initiating penalty proceedings under section 271(1)(c). Such satisfaction of AO must be spelt out in the order of assessment itself, but could not be assumed from the issue of a notice under section 271(1)(c). Failure to record such satisfaction amounts to a jurisdictional defect which could not be cured. [Para 20]

The assessee had concealed his income or has deliberately furnished inaccurate particulars thereof was essentially a finding of fact which had to be spelt out by way of recording the satisfaction of AO as required under section 271(1). Therefore, no penalty proceeding could be initiated. [Para 24]

In the present case, the declaration of income by the assessee in revised return and the explanation that it had done so to buy peace with the department and to avoid protracted litigation was accepted by AO in his order without raising any objection. AO accepted the return filed by the assessee after verification of the information filed and books of account produced. Thus, the assessment was completed accepting the returned net income as per the revised return of income. Not only the assessment order did not reflect any satisfaction as required under section 271(1), but even the show-cause notice was silent with reference to the satisfaction arrived at by AO regarding the concealment of income by the assessee. Nothing had been produced before the High Court by the revenue to show that any other material was available with AO to the effect that the assessee had concealed the income. Therefore, AO could not invoke the power under section 271(1)(c ) levying penalty. [Para 25]