Section 271(1) (c) of the Income Tax Act, 1961 deals with levy of penalty due to concealment of income by an assessee.
Penalty under section 271(1) (c) of the Income Tax Act can be imposed only if the following conditions are fulfilled:
1. The assessee has concealed the particulars of his income; or
2. The assessee has furnished incorrect details of his income.
3. Such penalty is levied by the Assessing Officer, CIT (Appeals) or CIT during any proceedings under the Act.
4. Such penalty is in addition to tax and interest, if at all any, payable by such an assessee.
5. The Assessing Officer is satisfied that the assessee has concealed the details of his income or has filed incorrect particulars of his income.
Amount of penalty:
The minimum amount of penalty is 100% of the tax sought to be evaded and maximum amount is not more than 300% of such amount.
Satisfaction of the Assessing Officer:
Concealing particulars of income or filing inaccurate details of income is an essential condition for levy of penalty under section 271(1) (c) of the Income Tax Act. Such satisfaction should be arrived at during any proceeding under the Act. Such satisfaction should be gathered from the accounts filed by the assessee.
Judicial decisions on the issue:
The Hon’ble Supreme Court in the case of D.M. Manasvi, 86 ITR 557 has held that satisfaction of the authority as to the conclusion that the assessee has either concealed the details of income or furnished incorrect details of income is the condition precedent for imposing penalty and it must be arrived at during any proceeding under the Act.
The Punjab & Haryana High Court in CIT vs. Mohinder Lal, 168 ITR 101 held that it is the satisfaction of the Assessing Officer during an assessment proceeding regarding the concealment of income that constitutes the basis of the proceedings for imposing penalty under section 271(1) (c) of the Income Tax Act .
The Bombay High Court in case of CIT vs. Dalmia Dyechem Industries, ITA No.1396/2013, has held that no penalty could be imposed unless the conduct of the assessee is proved to be malafide and the Assessing Officer should record the finding that there was active concealment or willful furnishing of incorrect particulars.
The Delhi High Court in CIT vs. Jain Export Private Ltd., ITA No.235/2013, has held that to initiate proceedings under section 271(1)(c) of the Income Tax Act it requires investigation and proper satisfaction of proof that confirms the basis for the initiation of such a proceeding. In its absence, no penalty can be invoked.
The Karnataka High Court in CIT vs. MWP Ltd. ITA No.332/2007 has stated that to initiate penal proceedings under section 271(1) (c), satisfaction regarding concealment of income should be made in assessment order.
Therefore it can be concluded from the various judgments of different High Courts that the satisfaction of the income tax authority is the essence of penalty under section 271(1)(c) of the Act which must be reflected in the order of assessment.
