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Income Tax Appellate Tribunal (ITAT) Kolkata has reiterated that though satisfaction u/s 271(1)(c) need not be recorded in a particular manner but from a reading of the assessment order as a whole such satisfaction should be clearly discernible.

Case Details:
ITA No.1303/Kol /2010 AY : 2006-07
Suvaprasanna Bhatacharya (Appellant) vs ACIT (Respondent)
Date of Order: 06-11-2015

Brief Facts of the Case:

The Assessee was a professional artist (painter). The assessee acting on the professional advice believing that sale of paintings being “personal effects” are not chargeable to tax, not declared such sales. However, during the assessment proceedings for AY 2006-07 the Assessing Officer completed the assessment with additions for such sales. Later penalty proceedings u/s 271(1)(c) for concealment of income/furnishing inaccurate particulars were initiated by issue of notice u/s 274.

On appeal, the CIT(A) upheld the penalty proceedings.

Before ITAT, the assessee submitted that the AO had not recorded satisfaction in the order of  assessment that the Assessee was liable to be proceeded against u/s.271(1)(c).  It was contended that the only observation recorded  in the order of assessment was “Penalty proceeding u/s.271(1)(c) initiated.” It was argued that the above manner of initiation of penalty proceedings in the order of assessment is not in accordance with law

Important Excerpts from ITAT Judgment

It is no doubt true that it is not the requirement of the law that the satisfaction has to be recorded in a particular manner, especially after the introduction of the provisions of Sec.271(1B) of the Act with retrospective effect from 1.4.1989. Nevertheless, as laid down by the Hon’ble Delhi High Court in the case of Ms.Madhushree Gupta (supra), the position of law both pre and post Sec.271(1B) of the Act is similar, inasmuch, the AO will have to arrive at a prima facie satisfaction during the course of proceedings with regard to the assessee having concealed particulars of income or furnished inaccurate particulars, before he initiates penalty proceedings ‘prima facie’ satisfaction of the AO that the case may deserve the imposition of penalty should be discernible from the order passed during the course of the proceedings. At the stage of initiation of penalty proceeding, the order passed by the AO need not reflect satisfaction vis-a-vis each and every item of addition or disallowance, if overall sense gathered from the order is that a further prognosis is called for. The decision of the Hon’ble Supreme Court in the case of MAK Data (P) Ltd. (supra) has to be understood in the context of the facts of the said case. The relevant portion of the judgment in the aforesaid case, reads thus:

“9. We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer 8 deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16.12.2003, in the case of a sister concern of the assessee. The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. The AO, in our view, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under Section 271 read with Section 274 of the Income Tax Act, 1961.

10. The AO has to satisfy whether the penalty proceedings be initiated or not during the course of the assessment proceedings and the AO is not required to record his satisfaction in a particular manner or reduce it into writing…….”

The Revenue places reliance only on the sentence appearing in para- 10 of the judgment without reading it in the context of the observations in the last portion of para-9 of the said judgment. Therefore even the Hon’ble supreme court’s decision suggests that the satisfaction need not be recorded in a particular manner but from a reading of the assessment order as a whole such satisfaction should be clearly discernible. If the AO accepts all the contentions of the assessee and the offer of income that has not been declared in the return of income to tax without indicating either directly or indirectly that the assessee has concealed particulars of income or furnished inaccurate particulars of income, it cannot be said that satisfaction for initiation of penalty proceedings is discernible from the order of assessment. If the assessee in good faith offers income to tax voluntarily prior to any positive detection by the AO, such voluntary offer cannot be taken advantage of by the AO to initiate penalty proceedings against the assessee without specifying the reasons why penalty proceedings are initiated u/s.271(1)(c) of the Act. In the present case, we have read the order of assessment as a whole and are satisfied that satisfaction for initiation of penalty proceedings is not discernible from the order of assessment. We therefore concur with the argument of the learned counsel for the assessee that initiation of penalty proceedings was not proper in the present case and on that ground the imposition of penalty u/s.271(1)( c) of the Act is unsustainable.

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ITAT-Satisfaction u/s 271(1)(c) need not be recorded in particular manner but reading the assessment order as a whole it should be clearly discernible | 11-11-2015 |