a.o. made additions in order u/s 143 (3). Cit (appeal) has deleted the additions. Department appealed to itat but ITAT rejected on the ground that tax effect was below 3 lakh. Now A.O. has given show cause notice for penalty u/s 271 (1) (c) for concealment of income whereas the CIT (A) deleted the additions. What should be our reply to the show cause notice?
In my opinion penalty cannot be imposed by AO because:
The penalty proceedings for concealment of income must be initiated by issuing a show
cause notice by:
(a) the Assessing Officer before the completion of the assessment; or
(b) the first appellant authority before passing an order under section 250
(c) the Commissioner of Income Tax before passing the order under section 263.
Further, the assessment order itself must contain a direction for issuing a penalty notice u/s. 271(1)(c). Hence, check the assessment order whether it contains such direction or not. You can find some case laws where penalty proceedings u/s. 271(1)(c) were held as invalid as the direction in this regard was not present in Asmt. order.
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