INCOME TAX ACT, 1961

Section 271(1)(c)

Penalty under section 271(1)(c) - Lability - No satisfaction recorded by AO about exact offence committed by assessee -

Assessee was engaged in business of builders and developers. AO noticed that assessee had debited an amount towards interest paid to partners @ 15% on their share capital. He observed, as per provision contained under section 40(b), interest payable to partners on their share capital could not exceed the rate of 12%. Accordingly, excess interest paid amounting was disallowed. Further, AO added back the amount on account of interest received on fixed deposit and interest received from other parties. Assessee preferred appeal before CIT(A) and during the pendency of assessee's appeal, AO issued a show cause notice for imposition of penalty under section 271(1)(c) on couple of additions made by him. Held: Undisputedly, in the assessment order, while initiating penalty proceedings under section 271(1)(c), AO had not recorded any satisfaction with regard to the exact offence committed by the assessee requiring imposition of penalty under section 271(1)(c). AO simply mentioned 'initiate penalty under section 271(1)(c)'. Only in the penalty order passed under section 271(1)(c), he stated that penalty was imposed for furnishing inaccurate particulars of income. AO failed to record any satisfaction with regard to the nature of offence committed by the assessee requiring imposition of penalty under section 271(1)(c). Thus, penalty was to be deleted.

REFERRED :

FAVOUR : In assessee's favour

A.Y. :

INCOME TAX ACT, 1961

Section 271(1)(c)

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