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2017 (3) TMI 804 - AT - Income TaxPenalty proceedings under section 271(1)(c) - Held that - The order of the CT(A) upholding the imposition of penalty u/s 271(1)(c) of the Act where the AO had not specified or mentioned the charge on which the penalty has been imposed is not correct and cannot be sustained. In view of the foregoing discussion we set aside the order of CIT(A) and direct the AO to delete the penalty levied u/s 271(1)( c ) of the Act. - Decided in favour of assessee
Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act, 1961. 2. Disallowance of depreciation on software purchase from a related party. 3. Disallowance of depreciation. 4. Disallowance under Section 40(a)(ia). 5. Addition as unexplained cash credit. 6. Validity of penalty notice under Section 274 without specific charge. 7. Levying penalty twice on the same additions. Detailed Analysis: 1. Confirmation of Penalty under Section 271(1)(c): The primary issue in the appeals was the confirmation of penalties imposed under Section 271(1)(c) of the Income Tax Act, 1961. The assessee challenged the penalties on various grounds, including disallowances and additions made by the Assessing Officer (AO). The penalties were related to disallowances of depreciation, disallowance under Section 40(a)(ia), and addition as unexplained cash credit. 2. Disallowance of Depreciation on Software Purchase from a Related Party: The assessee contended that the CIT(A) erred in confirming the penalty on the disallowance of depreciation amounting to ?25,45,459/- for the purchase of software from a related party. The Tribunal noted that the AO did not specify whether the penalty was for furnishing inaccurate particulars of income or for concealment of income. 3. Disallowance of Depreciation: The assessee also challenged the penalty on the disallowance of depreciation amounting to ?37,850/-. Similar to the previous issue, the Tribunal observed that the AO failed to specify the exact charge under which the penalty was levied. 4. Disallowance under Section 40(a)(ia): The penalty under Section 271(1)(c) was also confirmed for disallowance under Section 40(a)(ia) amounting to ?7,77,886/-. The Tribunal found that the AO did not clearly mention whether the penalty was for inaccurate particulars or concealment of income. 5. Addition as Unexplained Cash Credit: The penalty was confirmed on the addition of ?1,53,55,000/- as unexplained cash credit. The Tribunal noted the same issue of the AO not specifying the charge under which the penalty was imposed. 6. Validity of Penalty Notice under Section 274 Without Specific Charge: The assessee raised an additional ground arguing that the penalty notice under Section 274 was issued without specifying the specific charge, making it illegal and bad in law. The Tribunal agreed with the assessee, citing several judicial precedents, including the Karnataka High Court's decision in CIT vs. Manjunath Cotton & Ginning Factory, which held that a notice under Section 274 should specifically state the grounds mentioned in Section 271(1)(c). The Tribunal found that the AO's notice was issued in a standard format without striking off the irrelevant portions, indicating a lack of application of mind. 7. Levying Penalty Twice on the Same Additions: The assessee contended that the AO levied penalty twice on the same additions made in the order under Section 143(3) and the order passed under Section 143(3) r.w.s 153C, leading to duplicity of penalty proceedings. The Tribunal did not delve into this issue in detail as the primary ground of the validity of the penalty notice was sufficient to decide the appeals. Conclusion: The Tribunal concluded that the AO did not apply his mind while issuing the penalty notice under Section 274 r.w.s 271(1)(c) as it failed to specify whether the penalty was for concealment of income or furnishing inaccurate particulars of income. Consequently, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the penalties levied under Section 271(1)(c). The appeals of the assessee were allowed. Order Pronounced: The order was pronounced in the open court on 14th March, 2017.
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