Imposing some checks on arbitrary action by taxmen, the Income Tax Appellate Tribunal has made it tougher for the Assessing Officers (AOs) to impose penalty on common taxpayers.

Setting aside the orders of the AO and Commissioner of Income Tax (Appeals) in case of Delhi-based Genesis Overseas case, the ITAT has ruled that tax sleuths cannot impose penalty without clearly mentioning the grounds for such action.

"The required satisfaction for initiation of penalty proceedings as required in law was not at all discernible from the assessment order. . . penalty proceedings initiated by the AO were bad in law and the penalty imposed u/s 271(1)(c)in pursuance of such invalid initiation is not sustainable," the ITAT said in case of the city-based company.

The company, was charged by the tax department for concealment of income by furnishing inaccurate particulars for about Rs 10.68 lakh (Rs 1.068 million).

The department had alleged that the traveling expenses of Rs 2.37 lakh (Rs 237,000) to Hong Kong, Bangkok and Kathmandu by the directors of the company were not related to the business of the company but still shown as a business expense in an attempt to evade tax.

Also, another amount of Rs 8.3 lakh (Rs 830,000) was shown as commission expenses by the company while it had only shown in the accounts to be given to the company's sister concern in order to reduce income and evade tax, the department said.

However, the company in submissions before the ITAT said that requisite satisfaction concerning the concealment of income was not recorded by the AO and there was no clarity on penalty to be imposed.

Considering the arguments of both the parties , the tribunal ruled that in absence of a discernible satisfaction about the concealment being recorded by the tax officer, the penalty proceedings had no meaning.