2017 (5) TMI 969 - AT - Income Tax

Penalty u/s 271(1)(c) - specification of charge for which the assessee was being penalized - Held that - The penalty has been levied for filing of inaccurate particulars of income and hence concealed particulars of income which shows inconsistent thinking on the part of AO. Undisputedly, the AO was required to specify the exact charge for which the assessee was being penalized which he has failed to do so and the same has resulted into taking away assessee s valuable right of contesting the same and thereby violates the principles of natural justice. The notice issued under Section 274 must reveal application of mind by the Assessing Officer and the assessee must be aware of the exact charge on which he had to file his explanation. It was further observed that vagueness and ambiguity in the notice deprives the assessee of reasonable opportunity to contest the same. Therefore, we are inclined to conclude that the penalty proceedings stood vitiated for want of principles of natural justice and hence liable to be quashed. Accordingly, we delete the same. - Decided in favour of assessee.

Summary

Issues Involved:
Levy of penalty u/s 271(1)(C) for ?3,11,37,351 by CIT(A) - Legal grounds and merits contested by assessee.

Detailed Analysis:

Issue 1: Legal Grounds for Penalty
The appeal contested the penalty imposed under section 271(1)(C) for ?3,11,37,351 by CIT(A) based on legal grounds and merits. The assessee, engaged in land development, was assessed for the impugned assessment year at ?28,20,17,740, with adjustments including disallowances under section 40(a)(ia) and set-off of business losses. The penalty was imposed by the AO, citing the Supreme Court judgments in CIT Vs. Dharmendra Textile Processor and Dilip N.Shroff Vs. JCIT. The CIT(A) upheld the penalty, stating the false claim by the assessee aimed at reducing tax liability. The appellant challenged the penalty on legal grounds and merits.

Issue 2: Quantum Disallowance and Penalty
The appellant argued that since the Tribunal had deleted the quantum disallowance under section 40(a)(ia), the penalty related to it should not stand. The appellant also explained that the claim for set-off of business losses for certain years was due to inadvertent error, which was rectified upon identification. The appellant contended that penalties for inadvertent errors should not be levied, citing the Price Waterhouse Coopers Pvt. Ltd. Vs. CIT judgment.

Issue 3: Jurisdictional Requirement and Principles of Natural Justice
The appellant highlighted that the AO failed to specify the exact charge for the penalty in the assessment order, leading to ambiguity. The notice issued did not clearly state the grounds for penalty, violating principles of natural justice. The appellant relied on judicial precedents, including Dilip N.Shroff Vs. JCIT and CIT Vs. SSA’s Emerald Meadows, to argue that penalties without clear charges are void. The AO’s inconsistent thinking and lack of clarity in the penalty order were deemed as violations of natural justice.

Issue 4: Legal Precedents and Conclusion
The Tribunal analyzed the legal grounds in detail, emphasizing the distinction between furnishing inaccurate particulars of income and concealing income. Citing judicial precedents and the dismissal of SLP by the Apex Court, the Tribunal concluded that the penalty proceedings were vitiated due to the lack of clarity in charges and violation of natural justice principles. Therefore, the penalty was quashed, and the appeal was allowed on legal grounds.

Conclusion:
The Tribunal allowed the appeal, quashing the penalty proceedings on legal grounds due to the lack of clarity in charges and violation of natural justice principles. The Tribunal's decision was based on the distinction between furnishing inaccurate particulars of income and concealing income, as supported by judicial precedents and legal analysis.