2017 (3) TMI 1641 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of such bogus purchases from the purchases accounts - Held that - From the orders of the AO, it is obvious that the officers suffer from ambiguity as to which limb of the clause-(c) of section 271(1) of the Act should be invoked. The relevant addition is undisputedly the disallowance of such bogus purchases from the purchases accounts and the same was not properly understood in the light of clause-(c) of section 271(1) of the Act. Penalty should be clear as to the limb for which it is levied and the position being unclear here the penalty is not sustainable - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act.
2. Ambiguity in the Assessment Order and Penalty Order regarding the specific limb of Section 271(1)(c) invoked.
3. Applicability of Legal Precedents and Judicial Pronouncements.

Detailed Analysis:

1. Legality of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act:
The primary issue revolves around the legitimacy of the penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act. The assessee argued that the penalty proceedings were legally flawed as the Assessing Officer (AO) did not have clarity regarding the specific limb of Section 271(1)(c) being invoked—whether it was for "concealment of income" or "furnishing inaccurate particulars of income." This ambiguity was evident from the assessment order and the penalty order, both of which mentioned both limbs without specificity.

2. Ambiguity in the Assessment Order and Penalty Order:
The assessment order stated, "Penalty u/s 271(1)(c) is initiated for furnishing inaccurate particulars and concealment of income from receipt of commission." Similarly, the penalty order read, "the assessee has concealed its income by inflating its purchases by introducing bogus bills, and also furnished inaccurate particulars and is therefore liable for penalty u/s 271(1)(c)." Furthermore, the notice issued under Section 274 r.w.s 271 did not specify the exact limb, showing the AO's confusion. The Tribunal noted that the AO must clearly specify the grounds for penalty, and the lack of clarity indicated a failure to assume correct jurisdiction.

3. Applicability of Legal Precedents and Judicial Pronouncements:
The Tribunal relied on several legal precedents to adjudicate the matter. Key among these was the case of Shri Samson Perinchery, where the Tribunal, relying on the Karnataka High Court's judgment in CIT vs. Manjunatha Cotton & Ginning Factory, held that penalties under Section 271(1)(c) are unsustainable if the AO does not specify whether the penalty is for concealment of income or furnishing inaccurate particulars. The Tribunal also referenced the Hon'ble Apex Court's decision in MAK Data P. Ltd vs. CIT, distinguishing it on facts but acknowledging its relevance to the AO's satisfaction and jurisdiction.

The Tribunal emphasized that the AO's failure to specify the grounds for penalty in the notice under Section 274 violated principles of natural justice, rendering the penalty proceedings invalid. The Tribunal cited the Karnataka High Court's ruling that the notice must clearly state the grounds for penalty to allow the assessee to contest the proceedings adequately.

Conclusion:
The Tribunal concluded that the penalty proceedings were unsustainable due to the AO's failure to clearly specify the grounds for penalty. Consequently, the assessee's appeal was allowed on technical grounds, and the Revenue's appeal was dismissed as academic. The Tribunal's decision was consistent with the settled legal position, as confirmed by the Hon'ble Jurisdictional High Court.

Final Orders:
- The appeal of the Revenue was dismissed.
- The appeal of the assessee was allowed.

Order pronounced in the open court on 31st March, 2017.