2017 (1) TMI 997 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - disallowance of goodwill written off - concealment of income or for furnishing of incorrect particulars of income - Held that - A perusal of the assessment order shows that while recording satisfaction for initiating penalty proceedings u/s. 271(1)(c), the Assessing Officer in paragraph 4 of the order has stated that the penalty proceedings are initiated u/s. 271(1)(c) for filing wrong particulars of income and in concluding paragraph of the assessment order he has stated that show cause notice u/s. 274 r.w.s. 271(1)(c) to be issued for concealment of income/furnishing inaccurate particulars of income. This shows that the Assessing Officer is himself not clear whether the penalty is to be levied for furnishing of inaccurate particulars of income or concealment of income. A further perusal of the notice issued u/s. 274 r.w.s. 271(1)(c) which has been reproduced here-in-above further reveal that there is ambiguity in the notice with respect to charge for levy of penalty. It is not clear from the notice whether the penalty is being levied for concealment of income or furnishing of inaccurate particulars of income. The Assessing Officer has issued notice without striking of irrelevant clause in the standard proforma. Since, the notice issued u/s. 274 is vague, the same is invalid and the subsequent proceeding arising therefrom are thus vitiated. See Commissioner of Income Tax Vs. Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT has held that notice u/s. 274 of the Act should specifically state the grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income. Sending printed form where all the grounds mentioned in section 271(1) are mentioned would not satisfy the requirement of law. - Decided in favour of assessee

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the notice issued under Section 274 read with Section 271(1)(c) of the Income Tax Act.
3. Ambiguity in the charges for levy of penalty.

Issue-Wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The case involves the assessee, a partnership firm engaged in building and development, which faced a survey action under Section 133A on 30-08-2007. During the survey, documents were impounded showing the transfer of eight shops and one office to retiring partners at a market value of ?1,05,03,400/-, whereas the books recorded ?35,03,400/-. The difference of ?57,23,400/- was treated as goodwill by the assessee, and ?11,44,680/- was written off as depreciation. The Assessing Officer disallowed this deduction and initiated penalty proceedings under Section 271(1)(c) for filing wrong particulars of income. The Commissioner of Income Tax (Appeals) upheld this decision, and the matter was escalated to the Tribunal, which also confirmed the addition. The Assessing Officer subsequently levied a penalty of ?3,85,300/- for the addition of ?11,44,680/- on account of goodwill written off.

2. Validity of the Notice Issued under Section 274 read with Section 271(1)(c) of the Income Tax Act:
The assessee argued that the penalty proceedings were defective due to inconsistencies in the assessment order, the notice issued under Section 274, and the order levying penalty. The notice did not clearly specify whether the penalty was for concealment of income or furnishing inaccurate particulars of income, leading to ambiguity. The Tribunal noted that the notice issued was vague and did not strike off the irrelevant parts, making it unclear whether the penalty was for concealment of income or for furnishing inaccurate particulars.

3. Ambiguity in the Charges for Levy of Penalty:
The Tribunal observed that the Assessing Officer, while recording satisfaction for initiating penalty proceedings, mentioned both charges—concealment of income and furnishing inaccurate particulars of income—without specifying which charge was applicable. The penalty order and the notice under Section 274 were inconsistent and ambiguous, failing to provide clear grounds for the penalty. The Tribunal emphasized that the penalty proceedings under Section 271(1)(c) require clear specification of the charge, and the assessee should be made aware of the exact charge to defend against it. The Tribunal cited the Hon'ble Karnataka High Court's decision in the case of Commissioner of Income Tax Vs. Manjunatha Cotton and Ginning Factory, which held that a notice under Section 274 should specifically state the grounds for penalty, and a vague notice would violate the principles of natural justice.

Conclusion:
The Tribunal concluded that the penalty proceedings were vitiated due to the vague and ambiguous notice under Section 274 and the inconsistent recording of satisfaction by the Assessing Officer. Consequently, the penalty order was set aside, and the appeal of the assessee was allowed. The Tribunal's decision underscores the importance of clear and specific charges in penalty proceedings to uphold the principles of natural justice.