2018 (12) TMI 1625 - AT - Income Tax

Penalty u/s. 271(1)(c) - non specify the limb of section 271(1)(c) for which the penalty was initiated - non-application of mind rendering the penalty illegal and invalid - defective notice - HELD THAT - When penalty proceedings are sought to be initiated by the revenue under Section 271(1)(c) the specific ground which forms the foundation therefor has to be spelt out in clear terms. Otherwise, an assessee would not have proper opportunity to put forth his defence. When the proceedings are penal in nature, resulting in imposition of penalty ranging from 100% to 300% of the tax liability, the charge must be unequivocal and unambiguous. When the charge is either concealment of particulars of income or furnishing of inaccurate particulars thereof, the revenue must specify as to which one of the two is sought to be pressed into service and cannot be permitted to club both by interjecting an or between the two, as in the present case. This ambiguity in the show-cause notice is further compounded presently by the confused finding of the Assessing Officer that he was satisfied that the assessee was guilty of both. See THE PRINCIPAL COMMISSIONER OF INCOME-TAX-I, VISAKHAPATNAM VERSUS SMT. BAISETTY REVATHI 2017 (7) TMI 776 - ANDHRA PRADESH HIGH COURT The penalty proceedings initiated by the Assessing Officer are bad in law and liable to be quashed. Hence we quash the penalty proceedings/order and delete the penalty levied by the Assessing Officer u/s. 271(1)(c) of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Legality and validity of penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act.
2. Specificity of the charge in the penalty notice.
3. Application of judicial precedents regarding penalty proceedings.

Detailed Analysis:

1. Legality and Validity of Penalty Proceedings:
The primary issue revolves around the legality of the penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act. The assessee contended that the penalty proceedings were illegal and invalid because the show-cause notice did not specify the exact charge, i.e., whether the penalty was for concealment of income or furnishing inaccurate particulars of income. The Tribunal admitted this additional ground, citing it as a purely legal issue that did not require further factual investigation, referencing the Supreme Court's decision in NTPC Ltd. [229 ITR 383].

2. Specificity of the Charge in the Penalty Notice:
The Tribunal examined whether the Assessing Officer (AO) specified the charge for which the penalty was initiated. It was found that the AO did not strike off the irrelevant portion of the charge in the notice issued under Section 274 read with Section 271(1)(c) of the Act. The AO merely stated that penalty proceedings were initiated without specifying whether it was for concealment of income or for furnishing inaccurate particulars of income. This lack of specificity was deemed a significant issue, as it did not provide the assessee with a clear understanding of the charge, thus violating principles of natural justice.

3. Application of Judicial Precedents:
The Tribunal relied heavily on various judicial precedents to support its decision. Key references included:
- CIT v. Samson Perinchery [392 ITR 4]: The Bombay High Court held that if the AO fails to specify the charge for which the penalty proceedings are initiated, the proceedings are bad in law.
- Manjunatha Cotton & Ginning Factory [359 ITR 565]: The Karnataka High Court emphasized that the AO must specify whether the penalty is for concealment of income or for furnishing inaccurate particulars of income. Initiating penalty proceedings on one ground and imposing penalty on another is unsustainable.
- SSA's Emerald Meadows: The Supreme Court upheld that a notice under Section 274 read with Section 271(1)(c) must specify the exact charge, failing which the penalty proceedings are void ab initio.

The Tribunal also considered decisions from various Coordinate Benches of the ITAT, which consistently held that vague notices without clear charges render penalty proceedings invalid. These included cases like:
- M/s. Tata Communications Transformation Services Ltd. v. DCIT
- Suresh Seth v. ITO
- Orbit Enterprises v. ITO

Conclusion:
The Tribunal concluded that the penalty proceedings initiated by the AO were invalid due to the lack of a specific charge in the penalty notice. The AO's failure to strike off the irrelevant portion of the notice and specify whether the penalty was for concealment of income or furnishing inaccurate particulars of income rendered the proceedings void ab initio. Consequently, the penalty order was quashed, and the penalty levied under Section 271(1)(c) was deleted. The appeals of the assessee were allowed, and the appeal of the Revenue was dismissed.