Penal action u/s 271(1)(c) not sustainable where IT authorities are not sure about nature of default: ITAT

The Income Tax Appellate Tribunal (ITAT Delhi) in the matter of Sheetal Mehra vs. ITO has retreated decision of Hon’ble Gujarat High Court in the case of New Sorathia Engineering Company vs. CIT (2006) 282 ITR 642 (Guj.) and decision of the Co-ordinate Bench in the case of A2Z Maintenance & Engineering Services Limited vs. DCIT and others ITA No.2631/Del/2018 and ors. order dated 28.03.2023. ITAT quoted that in essence, where the concerned IT authorities are not sure about the nature of default, the panel action u/s 271(1)(c) of the Act is not sustainable in law.

Consequently, the penalty imposed u/s 271(1)(c) of the Act in question is set aside and cancelled.

As per the ground of appeal, the assessee has challenged the action of the CIT(A) confirming the penalty of Rs.2,16,133/- levied u/s 271(1)(c) of the Act by the Assessing Officer.

At the time of hearing, it transpired that while initiating the penalty proceedings u/s 271(1)(c) of the Act in the course of assessment proceedings, the Assessing Officer formed ‘satisfaction’ towards Concealment of Particulars of Income towards alleged unexplained cash deposits in question. However, on perusal of the penalty order passed by AO, it was noticed that the Assessing Officer has imposed penalty on a different premise i.e. furnishing inaccurate particulars of income. The CIT(A) in the first appeal confirmed the action of the AO on the grounds of ‘concealment of particulars of income’ de horse the penalty imposed by AO alleging furnishing inaccurate particulars of income.

In this factual background, it is apparent that the basis and foundation for imposition of penalty has been altered by AO himself while imposing the penalty in departure to satisfaction formed in the course of assessment proceedings. It is also ostensible from the findings recorded by the CIT(A) that penalty has yet again been confirmed on a different premise. Thus the original satisfaction for imposition of penalty has been altered and modified firstly by the AO and thereafter by the CIT(A). In such circumstances, where the original basis of imposition of penalty has been altered in a significant way both by the AO as well as by the CIT(A), the very basis for sustaining the penalty is rendered non-existent.

Needless to say, the imposition of penalty is solely dependent upon the initial ‘satisfaction’ of the AO in the course of assessment. The ground for initiating action against the assessee by the AO was initially ‘concealment’. This ground was substituted by the AO to ‘furnishing inaccurate particulars of income’ while imposing the penalty quantified by the AO. In the first appeal, the CIT(A) again confirmed the action of the AO but however on the grounds of concealment.

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