Correct initiation of Penalty u/s 271(1)(c) – Creating awareness among AO

Correct initiation of Penalty u/s 271(1)(c) – Creating awareness among AO

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OFFICE OF THE COMMISSIONER OF INCOME TAX

(DR)-7 G-BENCH, ITAT, ROOM NO.811

LOKNAYAK BHAWAN KHAN MARKET,

NEW DELHI 011-24656374, 9013854750

F.No. CIT(DR)/G-Bench/ITAT Del/2018-19/ Dated: 30.11.2018

To,

The Addl.CIT/AOs

Sub: Correct initiation of Penalty u/s 271(1)(c) – Creating awareness among AOs-Reg.

Kindly refer to the above.

In this regard, it is submitted that during my last two years of working as CIT(DR) ITAT, New Delhi it has been observed that Assessing Officers are consistently initiating penalty u/s 271(1)(c) incorrectly. It is necessary to spread awareness amongst Assessing Officers for initiating penalty u/s 271(1)(c) correctly.

  1. Correct Initiation and Levy of Penalty u/s 271(1)(c)

It is observed that after making an addition in the assessment order, penalty is often initiated mentioning both the limbs of above provision.

  1. penalty proceedings are initiated for furnishing inaccurate particulars of income and/or concealment of income. In recent judicial pronouncements, it is clearly held that penalty will not sustain if the correct limb of 271(1)(c) is not clearly specified. The Assessing Officers MUST mention only one limb i.e. furnishing inaccurate particulars of income OR concealment of income for initiating penalty on account of any one addition. Mention of both limbs with and/or should be avoided.
    1. Incorrect Initiation:
      • (i) Penalty proceedings u/s 271(1)(c) are initiated for furnishing inaccurate particulars of income and concealment of income
      • (ii) Penalty proceedings u/s 271(1)(c) are initiated for furnishing inaccurate particulars of income or concealment of income
    2. Correct Initiation:
      • (i) Penalty proceedings u/s 271(1)(c) are initiated for furnishing inaccurate particulars of income
      • (ii) Penalty proceedings u/s 271(1)(c) are initiated for concealment of income

Then: Strike Off inapplicable part in printed penalty order

  1. In many cases, it is observed that penalty is initiated for furnishing inaccurate particulars of income but levied for concealment of income and vice versa. Levy of such  penalty may not sustain in appeal
  2. The courts are now taking the view that the printed penalty notice u/s 274 r.w.s. 271 sent along with assessment order must clearly spell out under which limb of section 271   the penalty has been initiated. This implies that it is mandatory to strike off provisions not applicable and tick sections which are applicable even in the printed penalty notice.

CIT Vs Manjunatha Cotton And Ginning Factory (2013)(359 ITR565)

CIT Vs SSA’S Emerald Meadows (Supreme Court)

 

(S S Rana) Commissioner of Income

Tax (DR)-7 ITAT ‘G’-Bench, Delhi.

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