The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the penalty is not leviable in absence of proper show cause notice to the assessee.

Zile Singh Kashyap, the assessee challenged the order dated 15.11.2019 passed by the Commissioner of Income Tax (Appeals)-16, Delhi under Section 250 of the Income Tax Act, 1961 for Assessment Year 2011-12.

Assessee is an individual and proprietor of Jai Balaji Group. AO has noted that information was received from DDIT(Inv.) Unit, Mumbai that the firms/concerns operated by Anil Kumar Jain and Mr Praveen Kumar Jain and their associates were providing accommodation entries to various beneficiaries.

It was noticed that the assessee received bogus entries of Rs.15,00,000/- on different dates during the Financial Year 2010-11. A perusal of data from AST Systems reveals that though the assessee had filed a return of income for A.Y. 2011-12 the bogus purchases/accommodation entries of Rs.15,00,000/- was not disclosed while preparing taxable income.

He was therefore of the view that Rs.15,00,000/- has escaped the assessment, accordingly notice u/s 148 of the Act dated 31.03.2018 was issued and served on the assessee. Since there was no representation from the assessee and the assessment was getting time-barred, the AO passed the order u/s 147/144 of the Act vide order dated 28.11.2018 wherein he made the addition of Rs.15,00,000/-. Penalty order passed u/s 271(1)(c) of Rs.3,13,120/-. The CIT(A) dismissed the appeal of the assessee.

It is a settled law that while levying a penalty the AO must record satisfaction and thereafter come to a finding in respect of one of the limbs, which is specified under section 271(1)(c) of the Act. In CIT vs. Samson Perinchery (2017) it was held that where initiation of penalty is one limb and the levy of penalty is on another limb, then in the absence of proper show cause notice to the assessee, there is no merit in levy of penalty.

A Coram comprising of Anil Chaturvedi, Accountant Member and Yogesh Kumar US, Judicial Member observed that the basic condition for levy of penalty has not been fulfilled and that the penalty order suffers fromnon-exercising of jurisdiction power of AO. The Tribunal directed to delete the penalty since the conditions stipulated under section 271(1)(c) for the levy of penalty are not fulfilled. The appeal of the assessee was allowed.