2023 (3) TMI 1472 - AT - Income Tax

Penalty u/s 270A - under-reporting of income - Mandation to mention clear charge - HELD THAT - Order by AM - The penalty provisions of section 270A like provision of section 271(1)(c) are detrimental, albeit commercial consequences and being mandatory brooks no trifling or dilution therewith. Thus a contravention of a mandatory condition or requirement is fatal with no further proof and as a result in our considered view the ratio decidendi laid in context of section 271(1)(c) by the Hon ble Supreme Court in Dilip N Shroff Vs JCIT 2007 (5) TMI 198 - SUPREME COURT and Ashok Pai Vs CIT‛ 2007 (5) TMI 199 - SUPREME COURT further by plethora judgements including Samson Pericherry‛ 2017 (1) TMI 1292 - BOMBAY HIGH COURT , Goa Dorado 2020 (1) TMI 140 - BOMBAY HIGH COURT and New Era Sova Mine 2019 (7) TMI 1002 - BOMBAY HIGH COURT shall still hold good even in impugned penal proceedings of section 270A of the Act. AO after having clearly analysed facts and circumstances of the case has dejectedly failed to identify or determined and then communicate either through reassessment order or through notice the specific circumstance or incidence i.e. specific clause (a) to clause (g) of s/s (2) of section 270 within which the case of the appellant falls so has to hold income as under-reported to trigger said penal provision. The failure continued further in identifying or determining and showcasing the specific action of the appellant in terms of clause (a) to clause (f) to s/s (9) of section 270 within which such action of the assessee falls so has to jacket or categorise such under-reported income is in consequence of mis-reporting. We note that without adhering to aforestated exercise, the Ld. AO precipitately culminated penal proceedings imposing a penalty @200% of the tax sought to be evaded. Non identification or determination vis- -vis communication of specific clause lineally from sub-section (2) and sub-section (9) would drastically obstruct an assessee from enforcing his right to dismantle the charge alleged against him, thus resulting into violation of principle of natural justice. Non-application of mind by tax authorities while dealing with the penal provisions cannot at this stage be improved by remanding the matter back for denova consideration, hence prayer of the Ld. DR stands meritless. We find force in the argument of the appellant that, the failure on the part of lower tax authorities to identify and communicate the specific circumstance or incidence from clause (a) to (g) of s/s (2) of section 270A by virtue of which the income of the appellant held as under-reported and further failure on the part of lower tax authorities to showcase which of the specific action of the appellant from clause (a) to (f) of s/s (9) was determinant before imposing the impugned penalty u/s 270A of the Act has rendered the entire proceedings invalid and thus untenable in the eyes of law. CONCURRENT ORDER - BY J.M. - Find no merit in the Revenue s arguments as made clear that the assessee s case law indeed relates to the earlier penalty provision i.e., sec.271(1)(c) of the Act only wherein various hon ble higher judicial forums had settled the law that the Assessing Officer ought to specify as to whether the concerned taxpayer had concealed or furnished inaccurate particulars of his taxable income during the course of assessment. The very line of judicial precedents would squarely apply even for the amended penalty provision i.e., sec.270A of the Act as well wherein the legislature has not only prescribed twin limbs of under reporting of income as well as misreporting of income , but also, unlike the earlier provision u/sec.271, this time it has stipulated specific deeming illustrations under both the twin foregoing heads of the under reported income and misreporting of income in sub-sections (2) and (9) (a to f) respectively. Once the instant twin appeals involve levy of penalty @ 200% of the taxes sought to be evaded and the learned lower authorities have held the assessee to have under-reported his taxable income in consequence to misreporting , the latter limb of misreporting containing six sub-limbs in clauses (a to f) under sub-section- (9) deserve to be read as an extension of sub-section (8) to section 270A only. Going by stricter interpretation as per Commissioner of Customs (Imports), Mumbai vs. Dilipkumar And Co. Ors. 2018 (7) TMI 1826 - SUPREME COURT the above stated judicial precedents regarding the limb theory would squarely apply even in case of failure of the Assessing Officer to quote any of the six sub-limbs as well prescribed in sec.270A(9) (a) to (f) of the Act introduced by the legislature in order to rationalize and bring objectivity, certainty and clarity in the penalty provisions . And that his noncompliance to this clinching effect would not only defeat the legislative mandate but also it renders the amending provisions an otiose. Thus accordingly hold in these peculiar facts and circumstances that both the impugned penalties deserve to be quashed. Assessee appeal allowed.

Summary

Issues Involved:
1. Violation of the principle of natural justice.
2. Non-application of mind by the Assessing Officer (AO) in imposing penalty under Section 270A of the Income-tax Act, 1961.

Summary:

1. Violation of the Principle of Natural Justice:
The appellant contended that the penalty imposed under Section 270A of the Income-tax Act, 1961, was in violation of the principle of natural justice. The Tribunal observed that the AO failed to identify and communicate the specific circumstances or incidences from sub-section (2) and sub-section (9) of Section 270A that triggered the imposition of the penalty. This failure obstructed the appellant's right to refute the charge, resulting in a violation of the principle of natural justice. The Tribunal emphasized that even a traffic constable follows the principle of natural justice before imposing a penalty, and thus, the tax authorities should have adhered to the same standard.

2. Non-application of Mind by the Assessing Officer:
The Tribunal noted that the AO did not specify the relevant clauses under sub-section (2) and sub-section (9) of Section 270A in the reassessment order or the notice. This non-application of mind rendered the penalty proceedings invalid. The Tribunal highlighted that the penalty provisions of Section 270A, like those of Section 271(1)(c), are mandatory and any contravention is fatal. The Tribunal cited various judicial precedents, including the Hon'ble Supreme Court's decisions in 'Dilip N Shroff Vs JCIT' and 'Ashok Pai Vs CIT', to support its view that the failure to identify and communicate the specific circumstances or actions leading to the imposition of the penalty invalidated the proceedings.

Conclusion:
The Tribunal concluded that the penalty imposed under Section 270A of the Income-tax Act, 1961, was bad in law due to the failure of the AO to identify and communicate the specific circumstances or incidences triggering the penalty. Consequently, the penalty was quashed, and the appeals were allowed. The Tribunal also noted that remanding the matter for de novo consideration would not be appropriate.

Concurrent Order:
The Judicial Member concurred with the Accountant Member's order, emphasizing the importance of specifying the relevant limb under sub-section (9) of Section 270A in penalty proceedings. The Judicial Member reiterated that the failure to specify the corresponding sub-limbs (a to f) in sub-section (9) of Section 270A rendered the penalty proceedings unsustainable in law. The Judicial Member also highlighted the legislative intent to bring objectivity, certainty, and clarity in penalty provisions through Section 270A.