2017 (6) TMI 483 - AT - Income Tax

Penalty u/s. 271(1)(c) - non application of individual mind by AO - Held that - Assessing Officer did not apply his mind at the time of initiation of penalty proceedings and hence impugned penalty proceeding is liable to be quashed. We order accordingly. In this view of the matter, we set aside the order passed by the tax authorities. - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of penalty levied under Section 271(1)(c) of the Income Tax Act.
2. Application of mind by the Assessing Officer while issuing penalty notice.
3. Validity of the penalty notice issued by the Assessing Officer.

Detailed Analysis:

1. Confirmation of Penalty Levied Under Section 271(1)(c) of the Income Tax Act:
The assessee was aggrieved by the decision of the CIT(A) confirming the penalty of ?19.11 lakhs levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act. The AO disallowed the assessee's claim for various business expenses amounting to ?56,79,753 on the grounds that the assessee was barred from carrying on its business by SEBI, and thus, no expenditure was allowable. The AO held that the assessee furnished inaccurate particulars of income and levied the penalty accordingly. The CIT(A) upheld this penalty, leading the assessee to appeal.

2. Application of Mind by the Assessing Officer While Issuing Penalty Notice:
The assessee argued that the penalty notice issued by the AO did not specify the grounds for the penalty under Section 271(1)(c) and only mentioned the filing of return of income and compliance with notices under Sections 142(1)/143(2). The assessee contended that this indicated non-application of mind by the AO, making the penalty liable to be quashed. The Tribunal referred to the case of Dr. Sarita Mill, where it was held that the AO must apply his mind and clearly state the charge, i.e., whether the penalty was for concealment of income or furnishing inaccurate particulars.

3. Validity of the Penalty Notice Issued by the Assessing Officer:
The Tribunal observed that the penalty notice issued to the assessee was identical to the one in the Dr. Sarita Mill case, which lacked clarity on the specific charge under Section 271(1)(c). The notice was primarily for asking the assessee to furnish a return of income, with the last paragraph modified to show cause for penalty imposition. The Tribunal noted that the AO did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars, demonstrating non-application of mind. The Tribunal cited the Supreme Court's decision in Dilip N Shroff, emphasizing the AO's duty to clearly state the charge in the penalty notice.

The Tribunal also referred to the Bombay High Court's view in Smt. Kaushalya and Others, which emphasized the necessity for the AO to apply his mind when issuing a penalty notice. The Tribunal concluded that the AO's failure to specify the charge and the issuance of an incorrect notice indicated non-application of mind, rendering the penalty proceedings invalid.

Conclusion:
The Tribunal held that the AO did not apply his mind while issuing the penalty notice, and the notice was not in conformity with the intent and purpose of the Act. Consequently, the penalty proceedings were quashed, and the appeal filed by the assessee was allowed.