2016 (7) TMI 1500 - AT - Income Tax

Penalty u/s 271(1)(c) - non specification of charge - defective notice - Held that - Notice issued by the Assessing Officer under Section 274 read with Section 271(l)(c) to be bad in law as it did not specify which limb of Section 271(l)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of COMMISSIONER OF INCOME TAX -VS- MANJUNATHA COTTON AND GINNING FACTORY (2013 (7) TMI 620 - KARNATAKA HIGH COURT). Also see NEW SORATHIA ENGINEERING CO. VERSUS COMMISSIONER OF INCOME-TAX. 2006 (1) TMI 71 - GUJARAT HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
Sustenance of penalty under section 271(1)(c) of the Income Tax Act.

Analysis:

1. Imposition of Penalty @200% by AO:
The AO imposed a penalty on the assessee at the rate of 200% of the tax sought to be evaded, amounting to ?4,89,880. The AO justified this penalty by stating that the assessee provided changing and misleading explanations, warranting such a severe penalty. The tax sought to be evaded was calculated based on the assessed income, returned income, and the difference between the two.

2. Reduction of Penalty by CIT(A):
Upon appeal, the Ld. CIT(A) reduced the penalty imposed by the AO to 100% of the tax sought to be evaded, totaling ?2,44,940. This reduction was a significant departure from the initial penalty amount set by the AO.

3. Legal Provisions and Onus of Proof:
Section 271(1)(c) of the Income Tax Act allows the imposition of a penalty if a person is found to have concealed income particulars or furnished inaccurate income particulars. The judgment highlighted the distinction between concealing income particulars and furnishing inaccurate particulars. It emphasized that the onus of proof differs based on the charge. Explanation I applies to concealment of income particulars, placing the burden on the assessee. On the other hand, for furnishing inaccurate particulars, the burden of proof lies with the revenue. The judgment stressed the necessity of a specific charge for imposing a penalty under section 271(1)(c). It criticized the penalty order for lacking clarity on the specific charge for which the penalty was imposed, citing precedents from Gujarat High Court and Karnataka High Court to support the requirement of a specific charge. Due to the absence of a clear charge in the penalty order, the penalty under section 271(1)(c) was deemed unjustified and subsequently deleted.

4. Decision and Outcome:
The Tribunal allowed the appeal filed by the assessee, leading to the deletion of the penalty imposed under section 271(1)(c) of the Income Tax Act. The judgment was pronounced in the open court on 11/07/2016.

This detailed analysis of the judgment provides insights into the imposition, reduction, and subsequent deletion of the penalty under section 271(1)(c) of the Income Tax Act, emphasizing the importance of clarity and specificity in penalty orders to ensure a fair application of the law.