2017 (8) TMI 1375 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - non specification of charge - Held that - In the case in hand, there was no such mention. The decision of Mahesh Gandhi (2017 (3) TMI 132 - ITAT MUMBAI) relied by the Ld. DR is also inapplicable as in that case the assessee has filed revised computation of income on directors fee and capital gain on HDFC mutual fund during the course of assessment proceedings and the AO has specifically recorded findings in para 5 of the assessment order is details about concealment of income . Hence, facts of the said case are entirely different. Considering above facts and circumstances and relying judicial precedents as discussed above, we are of the considered opinion that penalty levied u/s 271(1)(c) is not sustainable in law, as no specific charge was levied in penalty show cause notices, hence, it is cancelled. Accordingly, all six appeals of assessee are allowed.

Issues Involved:
1. Validity of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the show-cause notice issued under section 274 for imposition of penalty.
3. Applicability of Explanation 5A to section 271(1)(c) regarding undisclosed income post-search.
4. Requirement of specific charge in penalty proceedings.

Issue-wise Analysis:

1. Validity of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The appeals pertained to penalties imposed under section 271(1)(c) for the assessment years 2002-03 to 2007-08 following a search and seizure operation on September 25, 2007. The primary contention was that the assessee did not conceal income or furnish inaccurate particulars, as the additional income was declared in the returns filed under section 153A. The Tribunal found that the penalty was based on the additional income declared post-search, which was accepted without variation. The Tribunal concluded that the penalties were not justified as the income was disclosed voluntarily and there was no concealment or furnishing of inaccurate particulars.

2. Validity of the Show-Cause Notice Issued under Section 274 for Imposition of Penalty:
The Tribunal examined the validity of the show-cause notices issued under section 274, which were found to be vague and cryptic. The notices did not specify the exact charge against the assessee, whether it was for "concealment of income" or "furnishing inaccurate particulars of income." The Tribunal emphasized that a clear and specific notice is a statutory requirement to ensure the assessee is aware of the charges and can prepare a defense. The Tribunal relied on the decision in CIT v. Manjunatha Cotton Ginning Factory [2013] 359 ITR 565 (Kar) and subsequent cases, which held that penalty notices must specify the grounds clearly, failing which the penalty cannot be imposed.

3. Applicability of Explanation 5A to Section 271(1)(c) Regarding Undisclosed Income Post-Search:
The Tribunal addressed the applicability of Explanation 5A to section 271(1)(c), which deals with penalties for undisclosed income discovered during a search. The Tribunal noted that the Explanation applies when income is not recorded in the books before the search. However, in this case, the Tribunal found that the penalty proceedings were initiated without a proper and specific show-cause notice, rendering the application of Explanation 5A irrelevant. The Tribunal concluded that the penalties could not be sustained due to the defective notices.

4. Requirement of Specific Charge in Penalty Proceedings:
The Tribunal reiterated the importance of specifying the exact charge in penalty proceedings. The penalty notices issued in this case were found to be defective as they did not strike off the inapplicable clauses, leaving the charge ambiguous. The Tribunal cited several judicial precedents, including the Supreme Court's decision in T. Ashok Pai v. CIT (2007) 292 ITR 11 (SC), which emphasized that concealment of income and furnishing inaccurate particulars are distinct charges and must be clearly specified. The Tribunal held that the failure to specify the charge violated the principles of natural justice and invalidated the penalty proceedings.

Conclusion:
The Tribunal allowed the appeals, canceling the penalties imposed under section 271(1)(c) for all assessment years from 2002-03 to 2007-08. The decision was based on the defective and vague show-cause notices, the lack of specific charges, and the voluntary disclosure of income by the assessee. The Tribunal's observations for the assessment year 2002-03 were applied mutatis mutandis to the other assessment years. Consequently, all six appeals were allowed, and the penalties were canceled. The Tribunal refrained from deciding other grounds of appeal on merits as they became infructuous. The order was pronounced in open court on August 11, 2017.

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