2022 (5) TMI 1571 - AT - Income Tax

Penalty u/s 271(1)(c) - non specification of clear charge - HELD THAT - AO is under obligation to specify the appropriate limb of clause c of section 271(1)(c) of the Act at the time of initiation as well as at the time of levy of penalty notice. In this case it has been drawn our attention that while recording the satisfaction in the assessment order as well as while issuing the notice at two occasion failed to specify the charge under which the assessee is liable for penalty and therefore we set aside the order of CIT(A) and direct the Assessing Officer to delete the levy of penalty imposed upon the assessee relying on the various decision cited by the co-ordinate bench while rendering the decision in the case of Shri Swapnil Kumar Jain 2022 (4) TMI 178 - ITAT RAIPUR - In the result the appeal of the assessee is allowed on legal issue.

Summary

Issues Involved:
1. Legality and validity of the penalty order passed by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961.
2. Whether the AO specified the exact charge for which the penalty was initiated.
3. Whether the assessee concealed income or furnished inaccurate particulars of income.
4. Technical validity of the show cause notice issued by the AO.

Detailed Analysis:

1. Legality and Validity of the Penalty Order:
The penalty order was challenged on the grounds that the show cause notice issued by the AO was illegal and not in accordance with the provisions of law. The assessee argued that the penalty imposed by the AO and confirmed by the Commissioner of Income Tax (Appeal) [CIT(A)] was not justified and was illegal.

2. Specification of the Exact Charge:
The assessee contended that the AO failed to specify the exact charge under which the penalty was initiated. The notice issued by the AO did not clearly indicate whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. The assessee argued that this lack of specificity rendered the penalty proceedings invalid.

3. Concealment of Income or Furnishing Inaccurate Particulars:
The AO observed that the assessee had sold a piece of land for Rs. 15,36,834/- but did not disclose the resulting Long Term Capital Gains (LTCG) of Rs. 10,62,670/- in the return of income. During the scrutiny proceedings, the assessee's Authorized Representative (AR) stated that the omission was inadvertent. The AO held that the assessee had concealed income by furnishing inaccurate particulars of income, as the LTCG was not disclosed in the return of income. Consequently, a penalty of Rs. 2,18,910/- was imposed under Section 271(1)(c) of the Act.

4. Technical Validity of the Show Cause Notice:
The assessee argued that the show cause notice issued by the AO was invalid as it did not specify the exact defect for which the penalty was initiated. The CIT(A) found that the notice dated 26/05/2017 had the sub-clause (c) printed in bold, indicating that the notice was issued for concealment of income or furnishing inaccurate particulars of income. However, the assessee argued that the notice was issued mechanically without specifying the charge, and thus, the penalty proceedings suffered from non-application of mind by the AO.

Conclusion:
The Tribunal found merit in the assessee's argument that the AO had failed to specify the exact charge under which the penalty was initiated. The Tribunal referred to various judicial precedents, including the Supreme Court's decision in the case of Dilip N. Shroff vs JCIT, which held that the terms "concealment" and "furnishing inaccurate particulars" signify two distinct connotations and must be specified clearly in the notice. The Tribunal also referred to the decision of the co-ordinate bench in the case of Shri Swapnil Kumar Jain, which dealt with a similar legal issue.

The Tribunal concluded that the AO's failure to specify the appropriate limb of clause (c) of Section 271(1)(c) at the time of initiation and levy of penalty rendered the penalty proceedings invalid. Consequently, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the penalty imposed on the assessee.

Final Judgment:
The appeal of the assessee was allowed on the legal issue, and the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, was quashed. The order was pronounced in open court on 25th May 2022.