S. 271(1)(c) – laws on levy penalty explained

In the case of initiation of penalty proceedingsduring the course of appeal or revision proceedings, theauthority who has to be satisfied is the authority in whoseproceedings the issue is examined and not any otherauthority. The levy of penalty has also to be done by thesame officer. It is only when the authority is satisfied thatnon-disclosure of income or furnishing inaccurateparticulars was with the intention of evading tax, then itamount to concealment, it amounts to furnishing inaccurateparticulars. Then, at his discretion, he may impose penaltyas provided under the Act.

If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority.

Merely because theassessee accepted addition or deletion and did not challengethe assessment order by way of appeal, it cannot beconcluded that such addition or deletion amounts to concealment of income or furnishing of inaccurateparticulars. When a plea is taken that in order to avoidlitigation and purchase peace, the tax levied is paid withinterest, if the assessee is able to demonstrate his bona fidesand if the authority is satisfied about his bonafides, then thequestion of imposing penalty would not arise. Similarly, incases where though the tax was not actually due but still theassessee pays tax with a hope of claiming deductions in thesubsequent years, if the assessee is able to demonstratethere was no liability to pay tax at all, merely if assesseepays tax and he does not challenge order, that would notconstitute concealment of income so as to enable theauthorities to impose penalty.

Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as tonon-application of mind.

The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee.Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law

CIT v. Manjunatha Cotton and Ginning Factory ITA No.2564 of 2005, 2565 of 2005, 5020 of 2009, 5022 of 2009, 5023 of 2009, 5025 of 2009 & 5026 of 2009 (Karnataka High Court) order dated 13-12-2012.