2018 (8) TMI 1889 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - non striking out inapplicable portions - HELD THAT - In the penalty notices, the AO did not strike out inapplicable portion. However, in the penalty order, the AO has levied penalty for concealment of particulars of income by invoking Explanation 1 to sec. 271. Provisions of sec. 271(1)(c) specifies two different charges, viz., concealment of particulars of income and furnishing of inaccurate particulars of income. In the case of Samson Perinchery 2017 (1) TMI 1292 - BOMBAY HIGH COURT has held that the initiation of penalty proceedings and levying of penalty should be on the same charge. In the instant case, the AO has initiated penalty proceedings under one charge, but levied penalty under another charge, which is clearly not permissible as per the decision rendered by Hon ble Bombay High Court in the case of Samson perinchery (supra). The sequence of events shows that there is lack of application of mind on the part of the AO. Hence the impugned penalty orders are not sustainable. Accordingly we set aside the orders passed by ld CIT(A) in both the years under consideration and also set aside the penalty orders passed for both the years under consideration. On merits, the Ld A.R submitted that the additions have been made on the basis of loose papers found during the course of search on estimated basis. Accordingly the Ld A.R submitted that there is no case for levying penalty on merits also. However, since we have quashed the penalty orders on legal issue urged before us, we do not find it necessary to address the issue on merits. - Decided in favour of assessee.

Summary

Issues:
- Confirmation of penalty under section 271(1)(c) of the Act by Ld CIT(A)
- Proper application of mind by the AO in levying penalty
- Invocation of Explanation 1 to section 271 for concealment of income
- Non-striking of inapplicable portion in the penalty notice
- Application of sec. 292B in penalty proceedings
- Compliance with legal requirements for penalty imposition

Confirmation of Penalty by Ld CIT(A):
The appeals were against orders confirming penalties under section 271(1)(c) of the Act for the assessment years 2006-07 and 2007-08. The AO had imposed penalties of ?26.61 lakhs and ?104.98 lakhs, respectively, at 150% of the tax sought to be levied. The Ld CIT(A) upheld the penalties, leading to the appeals before the Tribunal.

Proper Application of Mind by AO:
The Ld A.R argued that the AO did not properly apply his mind when levying penalties. It was highlighted that the AO initiated penalty proceedings for "failure to disclose true particulars of income" but levied penalties for "concealment of particulars of income" under Explanation 1 to section 271. The AO's failure to strike off the inappropriate limb in the notice was pointed out, indicating a lack of application of mind.

Invocation of Explanation 1 for Concealment of Income:
The Ld A.R contended that the AO's actions were contradictory as he charged the assessee for one offense in the assessment order but imposed penalties for another offense. The Ld CIT(A) upheld the penalties based on concealment of income, while the AO invoked Explanation 1 to section 271, deeming concealment. This discrepancy was argued to be a legal flaw.

Non-Striking of Inapplicable Portion in Penalty Notice:
The Ld D.R argued that the non-striking of inapplicable portions in the penalty notice did not invalidate the penalty proceedings. Citing precedents, it was claimed that such errors were curable and did not vitiate the penalty imposition.

Application of sec. 292B and Compliance with Legal Requirements:
The Ld A.R distinguished a previous case to argue that in the present situation, where the AO initiated penalties for one offense but imposed penalties for another, sec. 292B did not apply. The Tribunal noted the legal requirement that penalty proceedings and imposition should be based on the same charge, as established by the Hon’ble Bombay High Court in relevant cases.

Judgment and Decision:
After considering the arguments and precedents, the Tribunal found a lack of application of mind by the AO in initiating and levying penalties. The discrepancies in the charges and penalties imposed were deemed impermissible, leading to the quashing of penalty orders for both years. The Tribunal set aside the orders passed by Ld CIT(A) and the penalty orders. The appeals of the assessee were allowed, emphasizing the importance of compliance with legal requirements in penalty imposition. The Tribunal did not address the merits of the additions made, as the penalty orders were quashed based on legal issues.