Facts of the Case

The assessee, Mohammad Rehan Khan, was subjected to assessment proceedings wherein certain additions were made to the returned income. Consequent to these additions, the Assessing Officer initiated penalty proceedings under Section 271(1)(c) of the Income-tax Act for alleged concealment of income and furnishing of inaccurate particulars.

The penalty was imposed and subsequently confirmed by the Commissioner of Income Tax (Appeals). Aggrieved by the order of the CIT(A), the assessee filed an appeal before the Income Tax Appellate Tribunal.

 Issues Involved

  1. Whether the penalty imposed under Section 271(1)(c) was valid in law.
  2. Whether the Assessing Officer had recorded proper satisfaction regarding concealment or furnishing of inaccurate particulars.
  3. Whether penalty proceedings were initiated and sustained in accordance with statutory requirements.

 Petitioner’s Arguments (Assessee)

  • The penalty proceedings were initiated mechanically without proper application of mind.
  • No clear satisfaction was recorded regarding concealment of income or furnishing of inaccurate particulars.
  • The additions made in assessment do not automatically justify imposition of penalty.
  • The assessee had disclosed all material facts, and there was no deliberate concealment.
  • The penalty order was unsustainable in law and liable to be deleted.

Respondent’s Arguments (Revenue)

  • The assessee failed to properly explain the discrepancies leading to additions.
  • The Assessing Officer was justified in imposing penalty to protect revenue interests.
  • The orders of the lower authorities were valid and in accordance with law.
  • The confirmation of penalty by the CIT(A) should be upheld.

 Court Order / Findings (ITAT)

The Tribunal examined the assessment records and penalty proceedings and observed that imposition of penalty requires clear and specific satisfaction regarding concealment of income or furnishing of inaccurate particulars.

It held that penalty provisions are penal in nature and must be strictly construed. In the absence of proper satisfaction and cogent evidence of concealment, penalty cannot be sustained merely on the basis of additions made during assessment.

Important Clarification

  • Penalty under Section 271(1)(c) is not automatic upon addition of income.
  • Clear satisfaction regarding concealment or inaccurate particulars is mandatory.
  • Penalty proceedings must demonstrate independent application of mind.
  • Penal provisions must be strictly interpreted in favor of the taxpayer where ambiguity exists.

·       Link to download the order -

https://itat.gov.in/public/files/upload/1674476207-ITA%20No.%2034%20Alld%202022%20Mohammad%20Rehan%20Khan.pdf

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