2018 (5) TMI 1804 - AT - Income Tax

Penalty u/s 271(1)(c) - addition made by AO on protective basis - in the case of the assessee search u/s 132 of the Act was carried out and substantive additions were made in the hands of the assessee s father Yogiraj Sharma - Held that - The reason given by the Assessing Officer is an allegation which is not specific. AO has alleged that either the assessee has concealed the particulars of income or has furnished inaccurate particulars of income. It is clearly visible from the notice that at the time of initiation of penalty proceedings the Assessing Officer has not made specific satisfaction as to whether the assessee is guilty of concealing the particulars of income or furnishing inaccurate particulars of income. Even in the penalty order the Assessing Officer is not sure about the specific charge on the assessee for which penalty has been levied. Initiation of penalty proceedings by way of issuing notice u/s 274 r.w.s. 271(1)(c) of the Act do not meet the requirements as envisaged in the provisions of law and therefore all the six penalty orders under consideration cannot be sustained in the eyes of law. We accordingly quash all the six penalty orders and allow this common legal ground. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality and validity of the penalty order under section 271(1)(c) of the Income Tax Act.
2. Confirmation of penalty imposed under section 271(1)(c) by the Commissioner of Income Tax (Appeals).
3. Levy of penalty concerning protective addition.
4. Legality and validity of the show cause notice issued under section 271(1)(c).

Issue-wise Detailed Analysis:

1. Legality and Validity of the Penalty Order under Section 271(1)(c):
The assessee contested the legality of the penalty order under section 271(1)(c) of the Income Tax Act, arguing that the show cause notice was in a printed proforma without specifying the exact charge for which the penalty was sought. The Tribunal noted that the Assessing Officer (AO) did not make a specific satisfaction as to whether the assessee concealed the particulars of income or furnished inaccurate particulars of income. This lack of specificity was evident in both the notice and the penalty order. The Tribunal found that this ambiguity rendered the penalty order unsustainable, referencing several judicial precedents, including the High Court of Karnataka's decision in CIT vs. Manjunath Cotton & Ginning Factory and the Supreme Court's order in M/s. SSA’s Emerald Meadows.

2. Confirmation of Penalty Imposed under Section 271(1)(c) by the Commissioner of Income Tax (Appeals):
The Tribunal observed that the Commissioner of Income Tax (Appeals) confirmed the penalty imposed by the AO despite the procedural defects in the notice. The Tribunal held that the penalty orders could not be sustained due to the lack of specific charges in the show cause notices and penalty orders, thereby quashing the penalties for all assessment years under consideration.

3. Levy of Penalty Concerning Protective Addition:
The Tribunal noted that the additions were made on a protective basis in the hands of the assessee, while substantive additions were made in the hands of the assessee’s father. The Tribunal emphasized that the penalty under section 271(1)(c) could not be levied on protective additions, as the AO was not clear about the specific charge against the assessee. The Tribunal cited the case of Narayana Heights & Towers, where it was held that the AO must have a definite satisfaction regarding the specific charge for levying the penalty.

4. Legality and Validity of the Show Cause Notice Issued under Section 271(1)(c):
The Tribunal scrutinized the show cause notices issued under section 271(1)(c) and found that they were vague and did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars of income. The Tribunal reiterated that the AO must clearly state the grounds for the penalty in the notice to comply with the principles of natural justice. The Tribunal referenced the judgment in CIT vs. Manjunath Cotton & Ginning Factory, which emphasized the necessity of a specific charge in the penalty notice.

Conclusion:
The Tribunal quashed all six penalty orders for the assessment years 2002-03, 2004-05, 2005-06, 2006-07, 2007-08, and 2008-09, deeming them unsustainable due to the procedural defects in the show cause notices and penalty orders. Consequently, the remaining grounds were dismissed as infructuous.

Result:
All six appeals of the assessee were allowed, and the penalties were deleted.