2019 (7) TMI 1733 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - non specification of charge - HELD THAT - As decided in SMT. BAISETTY REVATHI 2017 (7) TMI 776 - ANDHRA PRADESH HIGH COURT when the proceedings are penal in nature, resulting in imposition of penalty ranging from 100 per cent to 300 per cent of the tax liability, the charge must be unequivocal and unambiguous. When the charge is either concealment of particulars of income or furnishing of inaccurate particulars thereof, the revenue must specify as to which one of the two is sought to be pressed into service and cannot be permitted to club both by interjecting one or between the two. Considering the above factual and legal discussions narrated above, in our view the penalty order levied by assessing officer and confirmed by ld CIT(A) is not sustainable on factual as well as on legal aspect. Therefore, we direct the assessing officer to delete the entire penalty levied under section 271(1) (c) - Decided in favour of assessee.

Summary

Issues:
1. Penalty levied under section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the show-cause notice under section 274 read with section 271 of the Income Tax Act, 1961.

Issue 1: Penalty under section 271(1)(c) of the Income Tax Act:
The appellant, engaged in Iron and Steel Trading, filed a return declaring a loss. The assessment disallowed the loss on shares as a sham transaction, leading to penalty proceedings initiated by the Assessing Officer. The penalty was initially calculated at 100% of the tax sought to be evaded. On appeal, the CIT(A) confirmed the penalty but directed a re-computation based on the long term capital gain. The appellant argued that no tax evasion occurred as the disallowed loss was not set off, and the penalty notice lacked specificity. The Tribunal noted that the penalty initiation lacked clarity on the charge of concealment or inaccurate particulars. Citing precedents, the Tribunal emphasized the necessity of specifying the charge for a valid penalty. As the disallowed loss remained unclaimed and penalty initiation lacked specificity, the Tribunal ruled in favor of the appellant, directing the deletion of the penalty.

Issue 2: Validity of the show-cause notice:
The appellant contended that the notice under section 274 read with section 271(1)(c) was null and void due to lack of specificity in the charge. The Tribunal, considering legal precedents, highlighted the importance of clearly stating the charge for penalty initiation. It was observed that the notice lacked clarity on whether it related to concealment of income or furnishing inaccurate particulars. Relying on established principles, the Tribunal emphasized the need for unambiguous charges in penalty proceedings. Consequently, the Tribunal found the notice deficient in specifying the charge, leading to the direction to delete the entire penalty. The Tribunal's decision was based on the legal requirement of clear and unequivocal charges in penalty notices to ensure fairness and proper defense opportunities for the assessee.

In conclusion, the Appellate Tribunal ITAT MUMBAI ruled in favor of the appellant, directing the deletion of the penalty levied under section 271(1)(c) of the Income Tax Act, 1961, due to lack of specificity in the penalty initiation and notice. The judgment emphasized the importance of clearly stating the charges in penalty proceedings to uphold fairness and provide adequate defense opportunities for the taxpayer.