2018 (4) TMI 1756 - AT - Income Tax

Penalty u/s 271(1)(c) - HELD THAT - As we have observed in Meherjee Cassinath Holdings Pvt. Ltd. 2017 (5) TMI 904 - ITAT MUMBAI while relying on the judgment of Hon'ble Supreme Court not only in the case of Dilip N. Shroff 2007 (5) TMI 198 - SUPREME COURT but also in the case of T. Ashok Pai, 2007 (5) TMI 199 - SUPREME COURT wherein it was held the two expressions, namely 'concealment of the particulars of income' and 'furnishing of inaccurate particulars of income' have different connotations, it is imperative for the assessee to be made aware as to which of the two is being put against him for the purpose of levy of penalty u/s 271(1)(c) of the Act. With utmost regards to the decision of coordinate bench, we noted that the decisions of Hon ble Apex Court were not brought to the notice of coordinate benches. With this observation, we accepted the legal submissions of the ld. AR for the assessee and allow the grounds of appeal raised by the assessee. Appeal filed by assessee is allowed.

Summary

Issues Involved:
1. Legitimacy of the penalty levied under section 271(1)(c) of the Income Tax Act, 1961.
2. Application of mind by the Assessing Officer while issuing the penalty notice.
3. Distinction between 'concealment of income' and 'furnishing inaccurate particulars of income'.
4. Validity of the penalty based on an ad-hoc addition.

Detailed Analysis:

1. Legitimacy of the penalty levied under section 271(1)(c) of the Income Tax Act, 1961:
The assessee filed a return declaring an income of ?16,85,000 for the Assessment Year 2010-11, which was later assessed at ?55,88,280 by the Assessing Officer, leading to an addition of ?39,03,238 for undisclosed investment in commodities. Consequently, a penalty of ?13,26,711 was levied under section 271(1)(c) for concealing income or furnishing inaccurate particulars. The CIT(A) upheld this penalty, prompting the assessee to appeal further.

2. Application of mind by the Assessing Officer while issuing the penalty notice:
The assessee contended that the show-cause notice issued by the Assessing Officer did not clearly indicate whether the penalty was for concealing income or furnishing inaccurate particulars, demonstrating a lack of application of mind. The Tribunal noted that the notice did not strike out the inappropriate portion, reflecting non-application of mind, as supported by the Supreme Court's decision in Dilip N. Shroff, where it was emphasized that such ambiguity signifies non-application of mind by the Assessing Officer.

3. Distinction between 'concealment of income' and 'furnishing inaccurate particulars of income':
The Tribunal reiterated that 'concealment of income' and 'furnishing inaccurate particulars of income' have different connotations, as established in cases like Dilip N. Shroff and T. Ashok Pai. It is crucial for the assessee to be clearly informed of the specific charge to prepare an adequate defense. The Tribunal found that the Assessing Officer's failure to specify the charge in the penalty notice violated the principles of natural justice.

4. Validity of the penalty based on an ad-hoc addition:
The Tribunal observed that the addition, which formed the basis for the penalty, was made on an estimation basis using the peak credit theory. It cited established legal positions that penalties under section 271(1)(c) cannot be levied on ad-hoc or estimated additions, further invalidating the penalty imposed.

Conclusion:
The Tribunal concluded that the penalty order was unsustainable due to the Assessing Officer's failure to apply his mind and the ad-hoc nature of the addition. The appeal was allowed, and the penalty order was set aside, emphasizing the need for clear and specific charges in penalty notices to comply with natural justice principles. The Tribunal's decision was pronounced in the open court on 25.04.2018.