2015 (6) TMI 992 - AT - Income Tax

Penalty u/s 271(1)(c) - whether the notice u/s 274 r.w.s. 271 does not specify the exact reason for initiation of penalty proceedings u/s 271(1)(c)? - Held that - The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 2007 (5) TMI 199 - SUPREME Court has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of MANU ENGINEERING reported in 1978 (9) TMI 18 - GUJARAT High Court and VIRGO MARKETING 2008 (1) TMI 885 - DELHI HIGH COURT has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore when the Assessing Officer proposes to invoke the first limb being concealment then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind. Thus we delete the penalty levied by the AO u/s 271(1)(c) of the Act. - Decided in favour of assessee

Summary

Issues:
Validity of penalty order under section 271(1)(c) of the Income-tax Act, 1961 due to lack of specific reason in the notice u/s 274.

Analysis:
The appeal was against the order of the CIT(A) for the assessment year 1999-2000, confirming the penalty imposed by the Assessing Officer (AO) under section 271(1)(c) of the Income-tax Act, 1961. The main contention raised was that the penalty order was flawed as the notice u/s 274 r.w.s. 271 did not clearly state the reason for initiating penalty proceedings. The appellant pointed out that the AO did not strike off the irrelevant portion of the notice, which was crucial for specifying the exact reason for the penalty. The appellant relied on a decision by the jurisdictional High Court in a similar case, emphasizing the importance of clearly stating the grounds for penalty imposition to allow the assessee to contest the proceedings effectively.

The Tribunal considered the arguments presented by both parties and referred to the judgment of the jurisdictional High Court in the case cited by the appellant. The judgment highlighted the necessity for the penalty proceedings to be initiated based on specific grounds mentioned in the order, ensuring that the assessee is informed about the reasons for potential penalty imposition. It was emphasized that the notice issued under section 274 should clearly state the grounds on which the penalty is being considered, allowing the assessee to respond adequately and contest the charges. The Tribunal reiterated that the penalty should be imposed only on the grounds for which the assessee was called upon to answer, and any deviation from this principle would violate the principles of natural justice.

Based on the similarity of facts and circumstances with the case cited from the jurisdictional High Court, the Tribunal decided to delete the penalty levied by the AO under section 271(1)(c) of the Act. The decision was made to align with the principles outlined in the judgment, emphasizing the importance of clarity and specificity in the notice of penalty proceedings. Consequently, the assessee's appeal was allowed, and the penalty was revoked.

In conclusion, the Tribunal's decision focused on upholding the principles of natural justice and ensuring that penalty proceedings are initiated and imposed based on specific grounds clearly communicated to the assessee. The judgment emphasized the need for transparency and specificity in the notice of penalty imposition to safeguard the rights of the assessee and maintain the integrity of the penalty proceedings under the Income-tax Act, 1961.