2019 (2) TMI 1793 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice - non specification of charge - HELD THAT - AO has initiated the penalty for furnishing of inaccurate particulars of income with a view to concealment of income. The notice u/s 271(1)(c) was issued on 28.12.2016 in a standard format without mentioning the one of the two limbs or one of the two charges on which the penalty was proposed to be levied. Finally the penalty was imposed by AO invoking explanation 4 to section 271(1)(c) of the Act which is applicable in the case of concealment of income. It is clear from the above that AO has not passed the order after due application of mind and thus , assessee was deprived of the opportunity to respond to the show cause notice in a proper manner as the assessee was not aware of the specific charge on which the penalty was proposed to be levied. We have carefully perused the decisions relied upon by the counsel in the case of Shivkumar Devidutt Saraf, HUF vs. ITO 2018 (4) TMI 1786 - ITAT MUMBAI and M/s. Quikr India Pvt. Ltd. vs. DCIT 2019 (1) TMI 1573 - ITAT MUMBAI wherein under similar set of facts the co-ordinate bench of the Tribunal has held that no penalty can be imposed in such cases where the AO has passed the order in a mechanical manner. - Decided in favour of assessee.

Summary

Issues involved:
Challenge to imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961 for furnishing inaccurate particulars of income with a view to concealment of income.

Detailed Analysis:

Issue 1: Challenge to imposition of penalty under section 271(1)(c)
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) relevant to the assessment year 2014-15. The grounds of appeal included the levy of penalty under section 271(1)(c) amounting to ?6,66,104. The appellant contended that the show cause notice issued by the Assessing Officer (AO) was bad in law as it did not specify the precise charge for the penalty imposition. The AO initiated penalty proceedings for furnishing inaccurate particulars of income with a view to concealment of income. However, the penalty order was passed for furnishing inaccurate particulars of income, which was different from the charge in the assessment order. The appellant argued that they provided a satisfactory explanation supported by documentary evidence, thus challenging the penalty imposition under section 271(1)(c) of the Act.

Issue 2: Application of mind by the AO
The Authorized Representative (A.R.) representing the appellant argued that there was a lack of application of mind on the part of the AO. The AO issued notices mentioning both charges but imposed the penalty under explanation 4 to section 271, which is applicable for concealment of income, not for furnishing inaccurate particulars of income. The A.R. contended that the penalty proceedings were flawed, depriving the appellant of the opportunity to respond adequately. The A.R. cited relevant Tribunal decisions to support the argument that the penalty imposition was incorrect due to inconsistencies in the process.

Issue 3: Decision of the CIT(A)
The CIT(A) upheld the penalty imposed by the AO, considering the non-mentioning of a particular limb in the penalty order as a clerical mistake. However, the Tribunal found that the AO did not apply his mind properly while passing the penalty order, leading to the appellant not being able to respond effectively to the show cause notice. The Tribunal referred to previous decisions where penalties were not upheld in similar cases of mechanical orders. Consequently, the Tribunal set aside the CIT(A)'s order and directed the AO to cancel the penalty.

Conclusion:
The Tribunal allowed the appeal in favor of the assessee based on the technical ground that the penalty imposition was flawed due to the AO's lack of proper application of mind. As a result, the penalty under section 271(1)(c) was directed to be deleted. Since this issue was decided in favor of the assessee, the Tribunal did not adjudicate on the other issue raised on merit.