2017 (6) TMI 349 - AT - Income Tax

Penalty u/s 271(1)(c) - non specification of charge - defective notice - Held that - The perusal of the assessment order reveals that the AO has only stated that the penalty proceedings under section 271(1)(c) of the Act are initiated separately without specifying or mentioning any specific charge under which the assessee is being proposed to be penalized i.e. whether the assessee has concealed a particulars of income or furnished inaccurate particulars of income. We also find from the show cause notice dated 28.12.2007 issued under section 271(1) (c) r.w.s.274 of the Act extracted hereinbelow, the AO did not mention or struck off the one of the two limbs under which the penalty was being proposed to be imposed. 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.

Summary

Issues Involved:
1. Confirmation of penalty on various additions.
2. Validity of penalty order due to lack of specific charge in the notice.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty on Various Additions:
The assessee raised multiple grounds against the confirmation of penalty by the Commissioner of Income Tax (Appeals) [CIT(A)] on various additions. These included:
- Penalty on addition of ?5,66,608.
- Penalty on ?23,101 being gifts received in India.
- Penalty on ?1,21,282 being gifts received from relatives.
- Penalty on ?4,10,225 being gifts received in foreign currency.

The assessee argued that these penalties were unjustified as the gifts were genuine and supported by confirmations from donors. The CIT(A) upheld the penalties, leading to the appeals.

2. Validity of Penalty Order Due to Lack of Specific Charge in the Notice:
The assessee filed an additional ground challenging the validity of the penalty order on the basis that the Assessing Officer (AO) did not specify in the notice whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income." The Tribunal admitted this additional ground for adjudication, noting it was purely legal and arose from the assessment records.

Detailed Analysis:

Validity of Penalty Order:
The Tribunal focused on the validity of the penalty order under Section 271(1)(c) of the Income Tax Act, 1961. The AO issued a notice using a standard format without specifying the exact charge, leading to ambiguity. The Tribunal noted that the AO must clearly state whether the penalty is for "concealment of income" or "furnishing inaccurate particulars of income." Failure to do so violates principles of natural justice and renders the penalty order void ab initio.

The Tribunal referenced several judicial precedents supporting this view, including:
- CIT vs. Manjunath Cotton & Ginning Factory (359 ITR 565) (Kar HC)
- CIT vs. SSA's Emerald Meadows (SLP) (SC)
- CIT vs. Samson Perinchery (Bom HC)

These cases established that a notice must specify the grounds for penalty, and failure to do so invalidates the penalty proceedings.

Outcome:
The Tribunal found that the AO did not apply his mind while issuing the penalty notice, as it did not specify the charge. This lack of specificity in the notice was incurable and went to the root of the penalty order. Consequently, the Tribunal set aside the CIT(A)'s order and directed the AO to delete the penalty.

Application to Other Appeals:
The Tribunal applied the same reasoning to the remaining appeals for the assessment years 2001-2002 to 2004-05, as the issues were identical. Thus, all appeals were allowed, and the penalties were deleted.

Conclusion:
In conclusion, the Tribunal allowed all the appeals filed by the assessee, quashing the penalty orders due to the AO's failure to specify the exact charge in the penalty notices. This decision was pronounced in the open court on 7th June 2017.