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2019 (3) TMI 314 - AT - Income TaxPenalty u/s 271(1)(c) - disallowance claimed by the assessee under the head professional and legal charges by treating the same as capital expenditure - HELD THAT - When there is two views if the expenditure claimed are capital or revenue in nature, again there is no question of attracting provisions contained under section 271(1)(c). AO himself is not satisfied since the time of framing assessment as to under which limb of section 271(1)(c) penalty is to be levied, he cannot be permitted under law to wash of his hands by taking recourse to Explanation 1 to section 271(1)(c) by placing the entire onus on the assessee to prove that there is no concealment of income/furnishing of inaccurate particulars of income. Penalty order further make it clear that at no point of time right from the passing of the assessment order till passing the penalty order, AO has not made himself satisfied or clear enough if the assessee has furnished inaccurate particulars of income or has concealed the particulars of income. The case of Sundaram Finance Ltd. 2018 (10) TMI 1451 - SUPREME COURT as relied upon by ld. DR for the Revenue is not applicable to the facts and circumstances of the case. Decision rendered in CIT vs. SSA s Emerala Meadows 2016 (8) TMI 1145 - SUPREME COURT and CIT vs. Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT are squarely applicable to the facts and circumstances of the case as the AO has miserably failed to specify in the notice issued under section 274 read with 271(l)(c), as to whether the assessee has concealed the particulars of his income or has furnished inaccurate particulars of such income , so in these circumstances, penalty levied by the AO and confirmed by CIT (A) is not sustainable in the eyes of law. Consequently, the appeal filed by the assessee is allowed.
Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961. 2. Validity of the penalty notice under Section 274 read with Section 271(1)(c). 3. Determination of whether the penalty was for concealment of income or furnishing inaccurate particulars of income. 4. Application of judicial precedents in penalty proceedings. Detailed Analysis: 1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961: The primary issue revolves around the penalty of ?45,36,743 imposed by the Assessing Officer (AO) under Section 271(1)(c) for the assessment year 2003-04. The penalty was levied on the grounds that the assessee furnished inaccurate particulars of income and concealed income, specifically related to a disallowance of ?1,34,56,177 under "professional and legal charges," which was treated as capital expenditure. The Commissioner of Income-tax (Appeals) [CIT(A)] reduced this amount to ?71,59,700 but upheld the penalty. 2. Validity of the Penalty Notice under Section 274 Read with Section 271(1)(c): The Tribunal examined the notice issued under Section 274 read with Section 271(1)(c) and found it to be vague and ambiguous. The notice did not specify whether the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of such income." This lack of specificity was deemed a significant defect, as it failed to inform the assessee of the exact charge against them, thereby offending the principles of natural justice. 3. Determination of Whether the Penalty was for Concealment of Income or Furnishing Inaccurate Particulars of Income: The Tribunal noted that the AO did not make a clear determination at any stage—whether during the assessment, in the penalty notice, or in the penalty order—whether the penalty was for concealment of income or furnishing inaccurate particulars. The AO's indecision and the subsequent vague notice were critical in the Tribunal's decision to invalidate the penalty. 4. Application of Judicial Precedents in Penalty Proceedings: The Tribunal relied on several judicial precedents to support its decision: - CIT vs. Manjunatha Cotton and Ginning Factory (Karnataka High Court): This case established that a notice under Section 274 must specify the exact charge to provide the assessee with a fair opportunity to respond. - CIT vs. SSA’s Emerala Meadows (Supreme Court): The Supreme Court upheld the Karnataka High Court's decision, emphasizing the necessity for specificity in penalty notices. - CIT vs. Reliance Petro Products Pvt. Ltd. (Supreme Court): It was held that merely making an unsustainable claim does not amount to furnishing inaccurate particulars of income. The Tribunal contrasted these precedents with the Revenue's reliance on Sundaram Finance Ltd. vs. CIT (Madras High Court), where the penalty was upheld despite a similar defect in the notice. However, the Tribunal found the facts of the present case more aligned with the former judgments, leading to the conclusion that the penalty was not sustainable. Conclusion: The Tribunal concluded that the penalty imposed under Section 271(1)(c) was invalid due to the defective notice and lack of clear satisfaction by the AO regarding the specific charge. The appeal filed by the assessee was allowed, and the penalty was set aside. The judgment emphasized the importance of specificity and clarity in penalty proceedings to uphold the principles of natural justice.
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