2016 (1) TMI 1227 - AT - Income Tax

Levy of penalty under section 271(1)(c) - Held that - Notices dated 13.12.2007 issued for initiation of penalty proceedings under section 247 r.w.s. 271 of the Act for levy of penalty under section 271(1)(c) of the Act for assessment years 1996-97 and 1997-98 are defective and issued without application of mind and are therefore invalid and consequently the orders levying penalty under section 271(1)(c) of the Act for both assessment years 1996-97 and 1997-98 are also invalid and liable to be cancelled. See Dilip N. Shroff vs. JCIT (2007 (5) TMI 198 - SUPREME Court) - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961.
2. Levy of penalty for furnishing inaccurate particulars of income.
3. Ambiguity in the show cause notice issued under section 274 r.w.s. 271 of the Act.
4. Application of judicial precedents regarding penalty proceedings.

Issue-wise Detailed Analysis:

1. Validity of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act, 1961:
The primary issue in these appeals was the validity of the penalty proceedings initiated under section 271(1)(c) of the Act. The assessee contended that the penalty proceedings were invalid and bad in law because the show cause notice issued under section 274 r.w.s. 271 of the Act was ambivalent. It did not specify whether the penalty was for concealing particulars of income or furnishing inaccurate particulars of income. The Tribunal found that the notices issued were standard printed cyclostyled notices and that the Assessing Officer (AO) did not delete the inappropriate words and paragraphs, indicating a lack of application of mind by the AO. Consequently, the Tribunal held that the penalty proceedings were invalid and bad in law.

2. Levy of Penalty for Furnishing Inaccurate Particulars of Income:
The Tribunal examined whether the penalty under section 271(1)(c) of the Act was exigible in the facts and circumstances of the case. It noted that penalty under this section could be initiated only if the AO was satisfied that the assessee had concealed particulars of income or furnished inaccurate particulars of income. The Tribunal referred to the Supreme Court's decision in Dilip N. Shroff vs. JCIT, which held that the AO must be clear on whether the penalty was for concealment of income or furnishing inaccurate particulars. Since the AO in this case was not clear, the Tribunal found the penalty proceedings to be invalid.

3. Ambiguity in the Show Cause Notice Issued under Section 274 r.w.s. 271 of the Act:
The Tribunal observed that the show cause notices issued by the AO were ambiguous as they did not specify the exact charge against the assessee. The Tribunal relied on the Supreme Court's decision in CIT vs. Reliance Petroproducts P. Ltd., which clarified that the conditions under section 271(1)(c) must exist before imposing a penalty, and the AO must be clear on whether the penalty is for concealment or furnishing inaccurate particulars. The Tribunal found that the ambiguity in the notices indicated non-application of mind by the AO, rendering the penalty proceedings invalid.

4. Application of Judicial Precedents Regarding Penalty Proceedings:
The Tribunal referred to several judicial precedents, including Dilip N. Shroff vs. JCIT, CIT vs. Reliance Petroproducts P. Ltd., and CIT vs. Manjunatha Cotton & Ginning Factory. These cases emphasized the importance of clarity in the show cause notices and the AO's application of mind in penalty proceedings. The Tribunal found that the principles laid out in these cases applied to the present case, leading to the conclusion that the penalty proceedings were invalid.

Conclusion:
The Tribunal allowed the assessee's appeals for assessment years 1996-97 and 1997-98, holding that the penalty proceedings under section 271(1)(c) of the Act were invalid due to the ambiguity in the show cause notices and lack of application of mind by the AO. Consequently, the Tribunal dismissed the Revenue's appeal for assessment year 1997-98 as infructuous. The order was pronounced in the open court on 4th January, 2017.