2019 (1) TMI 1573 - AT - Income Tax

Penalty u/s.271(1)(c) - non specification of charge - disallowance made u/s.40(a)(ia) and stamp duty addition on issuance of shares - HELD THAT - A notice issued u/s.274/271(1)(c) in which the AO has not mentioned the charge on which the penalty was proposed to be levied and the AO issued notice in a mechanical manner without application of mind - merit in the contention of the assessee that the penalty in the present facts of the case cannot be sustained as the assessee was deprived an opportunity to respond on the particular charge on which the penalty was to be levied. The case of the assessee is squarely covered by the decision of Manjunatha Cotton and Ginning Factory Ors. 2013 (7) TMI 620 - KARNATAKA HIGH COURT and the CIT Vs Samsaon Perincherry 2017 (1) TMI 1292 - BOMBAY HIGH COURT in which it has been held that no penalty has to be levied where the AO has not stated in the notice issued u/s 271 r.w.s. 271(1)(c) one of the two limb on which the penalty is proposed to be levied. Even on merit the case of the assessee is squarely covered by the decision of CIT Vs. Reliance Petroproducts (P) Ltd. 2010 (3) TMI 80 - SUPREME COURT wherein it has been stated that where the assessee has fully disclosed all the particulars of expenses in the return filed even though the claim of assessee is not correct, penalty cannot be imposed. In the present case before us the disallowance was made u/s.40(a)(ia) of the Act to ₹ 66,70,048/- and stamp duty on issuance of shares of ₹ 50,020/- aggregating to ₹ 66,70,048/- and penalty was on this additions. Even on merit the assessee has a strong case and the penalty cannot be sustained in any case. - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) of the Income-tax Act, 1961 - Concealment of income or inaccurate particulars of income - Opportunity to defend against penalty charge - Merit of penalty imposition based on disclosure in return filed.

Analysis:

1. Penalty under section 271(1)(c) of the Income-tax Act:
The case involved an appeal against the penalty imposed under section 271(1)(c) of the Income-tax Act for the assessment year 2009-2010. The penalty was imposed by the Assessing Officer (AO) for a total loss amount, including disallowances and additions. The penalty was based on the AO's assertion that the assessee concealed income and furnished inaccurate particulars of income. The Commissioner of Income Tax (Appeals) upheld the penalty, leading to the appeal before the Appellate Tribunal.

2. Opportunity to defend against penalty charge:
The appellant contended that the penalty notice did not specify whether it was for concealment of income or for filing inaccurate particulars of income. The appellant argued that this lack of specificity deprived them of the opportunity to defend against the particular charge on which the penalty was to be levied. Citing legal precedents, the appellant emphasized that the AO must clearly state the charge in the penalty notice, failing which the penalty may not be sustained.

3. Merit of penalty imposition based on disclosure in return filed:
The Appellate Tribunal analyzed the case in light of legal decisions, including the Supreme Court's ruling in CIT Vs. Reliance Petroproducts. The Tribunal noted that even if the assessee's claim was incorrect, if all particulars were fully disclosed in the return filed, a penalty could not be imposed. In this case, the disallowances made by the AO were based on specific additions to the income, and the penalty was calculated on these additions. The Tribunal found that the appellant had a strong case on merit, and the penalty could not be sustained.

4. Decision and Outcome:
After considering the arguments from both parties and reviewing the case details, the Appellate Tribunal ruled in favor of the assessee. The Tribunal held that the penalty imposed under section 271(1)(c) could not be sustained due to the lack of specificity in the penalty notice and the strong merit of the appellant's case. Consequently, the Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and directed the Assessing Officer to delete the penalty imposed.

In conclusion, the Appellate Tribunal allowed the appeal of the assessee, emphasizing the importance of providing a clear opportunity to defend against penalty charges and considering the merit of penalty imposition based on the disclosure in the filed return.