2013 (11) TMI 369 - AT - Income Tax

Notice of penalty under wrong provision of Act Penalty to be levied u/s 274 of the act for furnishing of inaccurate particulars and the notice was issued for penalty u/s 271(1)(c) for concealment of Income In this case, operation u/s 132 of the Act and the additional income was offered by the assessee and disclosed in the return in response to section 153A of the Act for all the assessment years under consideration - Held that - Once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts arid materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable. Concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujrat High Court in the case of MANU ENGINEERING reported in 1978 (9) TMI 18 - GUJARAT High Court and the Delhi High Court in the case o VIRGO MARKETING reported in 2008 (1) TMI 15 - HIGH COURT, DELHI , 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 - Penalty should be clear as to the limb for which it is levied and the position being unclear here the penalty is not sustainable - Ground raised by the assessee should be allowed on technical grounds Decided in favor of Assessee.

Summary

Issues Involved:
1. Confirmation of penalty levied under section 271(1)(c) of the Income Tax Act, 1961.
2. Satisfaction of the Assessing Officer (AO) regarding the initiation of penalty proceedings.
3. Clarity on whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income."

Issue-wise Detailed Analysis:

1. Confirmation of Penalty Levied Under Section 271(1)(c):
The primary issue raised by the assessee in the appeals was the confirmation of the penalty levied under section 271(1)(c) of the Income Tax Act, 1961. The assessee contended that the CIT (A) erred in confirming the penalty. The penalty was initially levied by the AO for the assessment years 2003-2004 to 2008-2009 following a search action under section 132 of the Act. The AO determined the total income and initiated penalty proceedings for furnishing inaccurate particulars of income. The CIT (A) dismissed the appeals for want of prosecution, as the assessee did not appear to represent his case adequately.

2. Satisfaction of the AO Regarding the Initiation of Penalty Proceedings:
The assessee's counsel argued that the penalty proceedings initiated by the AO were not clear, as the AO did not specify whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income." The counsel highlighted that the penalty was initiated for furnishing inaccurate particulars but was levied for concealment of income. The Tribunal noted that the AO's assessment order and the penalty order contained different reasons for the penalty, indicating a lack of clarity and application of mind by the AO.

3. Clarity on Whether the Penalty Was for "Concealment of Income" or "Furnishing Inaccurate Particulars of Income":
The Tribunal examined the relevant orders and notices issued by the AO. It was observed that the AO did not clearly specify the reason for the penalty in the notice issued under section 274 read with section 271. The Tribunal referred to the judgment of the Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, which emphasized that the penalty proceedings must be clear and specific about the grounds on which the penalty is imposed. The Tribunal concluded that the AO's failure to specify the exact reason for the penalty rendered the penalty proceedings unsustainable.

Conclusion:
The Tribunal allowed the appeals filed by the assessee on technical grounds, stating that the penalty proceedings were not sustainable due to the lack of clarity and proper application of mind by the AO. The penalty should be clear as to the limb for which it is levied, and in this case, the position was unclear. Consequently, the adjudication of the penalties on merits became an academic exercise, and the appeals for all six assessment years were allowed. The order was pronounced in the open court on 11th October 2013.