2017 (11) TMI 1765 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - initiation of penalty on one charge i.e. concealment of income‟ and levied penalty on another charge i.e. furnishing of inaccurate particulars of income - Held that - Bare perusal of recording of satisfaction, notice issued u/s. 274 r.w.s. 271(1)(c) and the order levying penalty, it is unambiguously clear that the Assessing Officer was not clear in his mind qua the charge under which penalty is to be levied. The Assessing Officer initiated penalty on one charge i.e. concealment of income‟ and levied penalty on another charge i.e. furnishing of inaccurate particulars of income . Commissioner of Income Tax Vs. Shri Samson Perinchery (2017 (1) TMI 1292 - BOMBAY HIGH COURT) has held that the order imposing penalty has to be made only on the ground for which the penalty proceedings have been initiated. It cannot be on a ground of which the assessee has no notice. The Pune Benches of the Tribunal have been consistently holding that recording of satisfaction on one ground and levying penalty on another would make the penalty order bad in law. - Decided in favour of assessee. Wrongful claim of bogus expenditure - A.Y. 2006-07 - Held that - Where the assessee has completely withheld information about the income generated and there is no mention of such income either in the books or the return of income, such suppression of income would fall within the expression concealment of income‟. It is not so in the present case. The assessee has made wrongful claim of bogus expenditure, therefore, it would be a case of furnishing of inaccurate particulars of income. Thus, in our considered view the Assessing Officer while recording satisfaction for levying penalty has erred in invoking wrong limb of section 271(1)(c). Consequently, the penalty has been levied under wrong charge for concealment of income. It is a case of furnishing of inaccurate particulars of income and not concealment of income. Since, the penalty u/s. 271(1)(c) has been levied on wrong charge - Appeal of assessee is allowed.

Issues Involved:
1. Validity of penalty order under Section 271(1)(c) of the Income Tax Act, 1961.
2. Proper recording of satisfaction for initiating penalty proceedings.
3. Correct limb under which penalty should be levied (concealment of income vs. furnishing inaccurate particulars of income).

Issue-wise Detailed Analysis:

1. Validity of Penalty Order under Section 271(1)(c) of the Income Tax Act, 1961:
The assessee challenged the validity of the penalty order on the grounds that the Assessing Officer (AO) did not apply his mind in invoking the correct limb under which the penalty was to be levied. The AO recorded satisfaction for initiating penalty proceedings for concealment of income but levied the penalty for furnishing inaccurate particulars of income. The Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. Shri Samson Perinchery held that penalty imposed on a charge different from the one for which satisfaction was recorded is unsustainable.

2. Proper Recording of Satisfaction for Initiating Penalty Proceedings:
In the assessment year 2005-06, the AO recorded satisfaction for initiating penalty proceedings for concealment of income but issued a notice under Section 274 r.w.s. 271(1)(c) mentioning both limbs—concealment of particulars of income or furnishing inaccurate particulars of income. The AO ultimately levied the penalty for furnishing inaccurate particulars of income. This inconsistency indicated that the AO was not clear in his mind about the charge under which the penalty was to be levied, rendering the penalty order invalid.

3. Correct Limb under which Penalty should be Levied (Concealment of Income vs. Furnishing Inaccurate Particulars of Income):
For the assessment years 2006-07, 2007-08, and 2010-11, the AO initiated penalty proceedings for concealment of income based on bogus expenditure and commission payments. The assessee argued that it was a case of furnishing inaccurate particulars of income rather than concealment of income. The Supreme Court in the case of T. Ashok Pai Vs. Commissioner of Income Tax and the Gujarat High Court in Nayan C. Shah Vs. Income Tax Officer clarified that "concealment of income" and "furnishing inaccurate particulars of income" are distinct expressions with different connotations. The Tribunal found that the AO had erred in invoking the wrong limb of Section 271(1)(c), as the case involved furnishing inaccurate particulars of income. Consequently, the penalty levied under the wrong charge was deemed unsustainable.

Separate Judgments Delivered:
The Tribunal addressed each appeal separately, providing detailed reasons for setting aside the impugned orders and allowing the appeals of the assessee for all the assessment years involved (2005-06, 2006-07, 2007-08, and 2010-11).

Conclusion:
In all four appeals, the Tribunal found that the AO had not correctly applied the law regarding the initiation and imposition of penalty under Section 271(1)(c). The penalty orders were set aside, and the appeals of the assessee were allowed. The Tribunal emphasized the necessity for the AO to be clear and consistent in recording satisfaction and levying penalties under the correct limb of Section 271(1)(c).

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