2016 (5) TMI 1577 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice - specific default/charge of the assessee - assessee submitted that the AO imposed penalty in a mechanical manner without due application of mind - HELD THAT - The penalty is not imposable u/s 271(1)(c) of the Act for year under consideration and is liable to be quashed on the ground that the AO has failed to apply his mind before initiating the penalty proceedings and, therefore, the proceedings initiated are bad in law. As such, CIT(A) was not justified in sustaining the penalty imposed by the AO. Accordingly, the order of the ld. CIT(A) is set aside and penalty levied by the AO is cancelled. Appeal of assessee allowed.

Summary

Issues:
Assessment of concealment penalties for the assessment years 2001-02, 2002-03, and 2004-05.

Analysis:
The Appellate Tribunal ITAT Amritsar heard the assessee's appeals against the confirmation of concealment penalties by the ld. CIT(A) for the mentioned assessment years. The assessee, engaged in embroidery business and other income sources, declared short-term capital loss from shares. The AO issued a notice u/s 148, and during reassessment, evidence was provided to prove the genuineness of capital gain. The AO levied penalties under section 271(1)(c) of the Income Tax Act, 1961, based on certain statements and evidence. On appeal, the ld. CIT(A) upheld the penalty.

The counsel for the assessee argued that the penalty was imposed mechanically without proper application of mind by the AO. It was contended that the AO did not clearly specify whether the penalty was for concealing income particulars or furnishing inaccurate particulars. Various court decisions were cited to support the argument that the penalty should be cancelled due to lack of specific fault/charge identified by the AO.

After considering the arguments, the Tribunal found that the AO had not satisfactorily established the concealment or inaccuracy of particulars in the assessment order. The notice issued by the AO lacked specificity regarding the nature of the default. Relying on the cited court decisions, the Tribunal concluded that in the absence of a specific fault/charge, the penalty could not be imposed. Therefore, the penalty for all the assessment years was cancelled, as the AO failed to apply his mind before initiating the penalty proceedings.

In light of the above analysis, the Tribunal set aside the ld. CIT(A)'s order and cancelled the penalties imposed by the AO for all the assessment years. The decision was based on the lack of specific fault/charge identified by the AO, rendering the penalty proceedings invalid. Consequently, all three appeals of the assessee were allowed, and the penalties were revoked.

The detailed examination of the issues surrounding the concealment penalties for the mentioned assessment years highlighted the importance of a clear and specific determination by the assessing officer before imposing penalties under section 271(1)(c) of the Income Tax Act, 1961. The case serves as a reminder of the necessity for meticulous consideration and proper documentation in penalty proceedings to ensure the validity and justifiability of the penalties imposed.