2017 (4) TMI 445 - AT - Income Tax

Penalty u/s.271 (1)(c) - invalid notice - Held that - The notice dated 30.12.2011 issued for initiation of penalty proceedings under section 271(1)(c) of the Act for A.Y. 2006-07 is defective and issued without application of mind and is therefore invalid and bad in law. Consequently the order dated 27.09.2013 levying penalty under section 271(1)(c) of the Act for A.Y. 2006-07 is also invalid and liable to be cancelled. In this view of the matter the impugned order of the learned CIT(A) is reversed and the additional grounds 1 and 2 raised by the assessee for A.Y. 2006-07 are allowed.

Issues Involved:
1. Validity of penalty proceedings initiated under section 271(1)(c) of the Income Tax Act, 1961.
2. Legality of the penalty order dated 27.09.2013.
3. Partial confirmation of penalty by CIT(A) on specific disallowances.

Issue-Wise Detailed Analysis:

1. Validity of Penalty Proceedings Initiated Under Section 271(1)(c):
The core issue revolves around whether the penalty proceedings initiated under section 271(1)(c) of the Income Tax Act, 1961, are valid. The assessee contends that the show cause notice issued under section 274 r.w.s. 271 of the Act on 30.12.2011 is ambivalent as it does not specify whether the initiation of penalty is for "concealing of income" or for "furnishing of inaccurate particulars of income." This ambiguity, according to the assessee, evidences non-application of mind by the Assessing Officer (AO). The Tribunal, referencing several judicial pronouncements, including CIT vs. Samson Perinchery, Manjunatha Cotton and Ginning Factory, and Precision Containeurs Ltd., concluded that the notice was defective and issued without application of mind, rendering it invalid and bad in law. Consequently, the penalty order dated 27.09.2013 was also deemed invalid.

2. Legality of the Penalty Order Dated 27.09.2013:
The Tribunal examined whether the penalty order dated 27.09.2013, which levied penalties on four additions/disallowances, was legally sustainable. The assessee argued that the penalty order was based on a defective notice and hence invalid. The Tribunal agreed, noting that the AO had not specified the grounds for penalty clearly in the notice, which is a prerequisite for a valid penalty proceeding. The Tribunal cited the Hon'ble Supreme Court's decision in the case of Dilip N. Shroff vs. JCIT, which emphasized the necessity of clear grounds for penalty in the notice. As the notice failed to meet this criterion, the penalty order was invalidated.

3. Partial Confirmation of Penalty by CIT(A) on Specific Disallowances:
The CIT(A) had earlier deleted the penalty on two issues but upheld it on two others: disallowance of expenses claimed against interest income (?6,28,866) and disallowance of society and maintenance charges (?3,04,293). The assessee challenged this partial confirmation, arguing that the penalties were wrongly levied. However, since the Tribunal found the initial notice itself to be defective, it did not delve into the merits of these specific disallowances. The Tribunal's decision to invalidate the entire penalty proceeding rendered these specific grounds academic and not requiring further adjudication.

Conclusion:
The Tribunal allowed the assessee's appeal, declaring the penalty proceedings initiated under section 271(1)(c) and the consequent penalty order dated 27.09.2013 as invalid and bad in law due to the defective notice issued by the AO. This decision was based on established judicial precedents that require clear and specific grounds for penalty in the notice issued under section 274 r.w.s. 271 of the Act. The Tribunal's order effectively canceled the penalties levied, addressing the assessee's grievances comprehensively.

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