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2018 (3) TMI 1797 - AT - Income TaxLevy of penalty u/s. 271(1)(c) - LTCG claimed exempt in original return of income - defective notice - recording of satisfaction - HELD THAT - The manner in which satisfaction has been recorded without specifying the charge and the perusal of order levying penalty clearly reveal that there was ambiguity in the mind of AO at the time of recording satisfaction, as well as, at the time of passing of the order levying penalty. No limb of section 271(1)(c) i.e. whether the penalty is being initiated for concealment of particulars of income or furnishing inaccurate particulars of income has been mentioned while recording satisfaction. Whereas, at the time of passing of the order levying penalty the AO has used both the expressions. The charge for levy of penalty u/s. 271(1)(c) has to be specifically conveyed to the assessee at the time of recording satisfaction otherwise, the principles of natural justice are offended. The assessee should know the charge which he has to meet while defending his case for levy of penalty. Thus, we are of considered view that the penalty proceedings suffer from element of vagueness at the time of satisfaction, and also at the time of passing of the order levying penalty u/s. 271(1)(c). Hence, the penalty proceedings are liable to be set aside. Since, the assessee has succeeded on the legal issue and the penalty has been set aside, deliberating on the merits of appeal by Department would be merely an academic exercise. Accordingly, the appeal of Revenue is dismissed.
Issues Involved:
1. Validity of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961. 2. Whether the Assessing Officer specified the limb for which penalty was initiated. 3. Admissibility of legal grounds raised for the first time before the Tribunal. 4. Merits of the appeal by the Revenue regarding the deletion of penalty by the Commissioner of Income Tax (Appeals). Issue-wise Detailed Analysis: 1. Validity of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961: The Revenue appealed against the order of the Commissioner of Income Tax (Appeals)-2, Nashik, which deleted the penalty levied under Section 271(1)(c) for the assessment year 2006-07. The penalty was initially imposed by the Assessing Officer for furnishing inaccurate particulars of income and concealment of income. 2. Whether the Assessing Officer specified the limb for which penalty was initiated: The Tribunal noted that the Assessing Officer did not specify the limb of Section 271(1)(c) for which the penalty proceedings were initiated. The assessment order stated, "Notice u/s. 271(1)(c) of the I.T. Act, 1961 is being issued in respect of the long term capital gains claimed in the original return filed on 31-10-2006." However, the penalty order mentioned both "furnishing inaccurate particulars of income" and "concealment of income," indicating ambiguity in the mind of the Assessing Officer. 3. Admissibility of legal grounds raised for the first time before the Tribunal: The Tribunal referred to the Supreme Court's decision in National Thermal Power Co. Ltd. Vs. Commissioner of Income Tax, which allows legal grounds to be raised for the first time before the Tribunal. The Tribunal also cited the Madras High Court's decision in Commissioner of Income Tax Vs. Smt. S. Vijayalakshmi, which supports granting relief to the assessee even without a specific appeal or cross-objection if the facts permit. The Tribunal admitted the legal ground raised by the assessee regarding the defect in recording satisfaction for the penalty. 4. Merits of the appeal by the Revenue regarding the deletion of penalty by the Commissioner of Income Tax (Appeals): The Tribunal observed that the penalty proceedings suffered from vagueness at the time of recording satisfaction and at the time of passing the penalty order. The Karnataka High Court in Commissioner of Income Tax Vs. Manjunatha Cotton and Ginning Factory held that the specific grounds for penalty must be clearly stated to allow the assessee to defend against the charge. The Tribunal found that the Assessing Officer's failure to specify the charge violated the principles of natural justice. Consequently, the Tribunal set aside the penalty proceedings, rendering the Revenue's appeal on merits academic and dismissing it. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the deletion of the penalty by the Commissioner of Income Tax (Appeals) due to the procedural defect in the penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961. The order was pronounced on March 28, 2018.
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