Discipline regarding penal action under various tax laws are widely discussed. Two interesting recent cases under Income Tax allows one to reflect further. Generally, losses are contested and seldom is it seen that assessee accept a loss return to be assessed as NIL. However, what if in spite of an irrefutable loss the assessee in good faith and, to avoid undue litigation, harassment and, to buy peace of mind agrees to get assessed at NIL income instead of declared loss, can a penalty/prosecution proceeding be initiated against the assessee u/s 271(1)(c) of the Income Tax Act? The answer is that it can be initiated. There is no provision for such pleas of bargain under the Income Tax Act to act as estoppels upon AOs. However, in case the plea is not accepted by the AO, the assessee should be show caused and there should be substance in enquiry and evidence to prove concealment. Penalty proceedings are distinct from assessment proceedings, though they emanate from the assessment proceedings; still, they are separate and independent proceedings all together. The Hon’ble Supreme Court of India in the case of CIT & Act. Vs. M/s SSA’s Emerald Meadows in CC dated 05.8.2016 [2016]73 Taxmann.com 48 (SC) has held that notice issued by the Assessing Officer under section 274 read with section 271(1)(c) of the Act was bad in law, as it did not specify under which limb of section 271(1)(c) of the Act, penalty proceedings has been initiated, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The assessee should know the grounds which has to meet, otherwise the principles of natural justice are offended. Further, the order has to specify the offence alleged to be committed, as was held in the case of M/s UNITECH REALTY PVT. LTD Vs DCIT, CIRCLE - 27(1), NEW DELHI [2023-VIL- 1036-ITAT-DEL].
Now coming to penalty proceeding u/s 271D which requires that if a person takes any loan or deposit or specified sum in contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified sum so taken. The question is whether levy of penalty under this provision is not depending on the outcome of the assessment order and hence there is no requirement of the assessment proceedings in imposing the provision u/s 271D of the Act. Here Section 275 comes to the rescue which presupposes the existence of assessment proceedings/revision proceedings or appeal proceedings arising from the assessment order or revision order and the limitation is provided as per outcome of these proceedings. In absence of assessment, the initiation of penalty is not valid. The Hon’ble Supreme Court in the case of CIT vs. Jain Laxmi Rice Mills has held that in absence of satisfaction recorded regarding the penalty proceedings u/s 271E/ 271D of the Act the order of levy of penalty is not valid. The same was also reiterated in the case of SHRI UMAKANT SHARMA Vs JCIT RATLAM [2023-VIL-1034-ITAT-IND].
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