BSC C & C Joint Venture Vs ACIT/DCIT (ITAT Delhi)
Delhi ITAT Quashes Section 271(1)(c) Penalty for PF Disallowance as No Satisfaction Was Recorded in Assessment Order
The Delhi Bench of the ITAT, in BSC C & C Joint Venture v. ACIT/DCIT (AY 2016-17), held that a penalty under section 271(1)(c) cannot be sustained where the Assessing Officer failed to record satisfaction in the assessment order with respect to the specific addition on which the penalty was ultimately levied. Accordingly, the Tribunal quashed the penalty imposed on the disallowance of employees’ contribution to Provident Fund under section 36(1)(va).
The assessee’s assessment resulted in, inter alia, a disallowance of ₹3.55 crore on account of delayed deposit of employees’ contribution to PF under section 36(1)(va). After the disallowance was upheld in quantum proceedings following the Supreme Court’s decision in Checkmate Services Pvt. Ltd., the Assessing Officer levied a penalty of ₹1.21 crore under section 271(1)(c) for furnishing inaccurate particulars of income, which was confirmed by the CIT(A).
Before the Tribunal, the assessee contended that the assessment order recorded satisfaction for initiating penalty only in respect of the Transfer Pricing adjustment and not for the PF disallowance. It was further argued that the PF issue was highly debatable at the relevant time and had been fully disclosed in the Tax Audit Report, with the law being settled against the assessee only subsequently by the Supreme Court in Checkmate Services Pvt. Ltd.
The Tribunal examined the assessment order and found that the Assessing Officer had expressly recorded satisfaction for initiation of penalty only in relation to the Transfer Pricing adjustment. There was no satisfaction whatsoever regarding the disallowance under section 36(1)(va). Holding that recording of satisfaction for the specific addition is a jurisdictional prerequisite for invoking section 271(1)(c), the Tribunal concluded that the penalty proceedings relating to the PF disallowance were without jurisdiction and therefore invalid.
Accordingly, without entering into the merits of the other contentions, the Tribunal quashed the penalty order and allowed the assessee’s appeal, reiterating that penalty proceedings are addition-specific and cannot be sustained in the absence of a valid satisfaction recorded in the assessment order for the particular addition.
Cases Discussed
