2017 (7) TMI 105 - AT - Income Tax

Penalty levied u/s 271(1)(c) - exemption claimed u/s 54 - Held that - AO failed to crystallize the charge on which the penalty was proposed u/s 271(1)(c) of the Act, which has to be met out by the assessee. Considering the decision of various Superior Courts, Hon ble Bombay High Court in the case of Shri Samson Perinchery 2017 (1) TMI 1292 - BOMBAY HIGH COURT , we delete the penalty levied by AO. - Decided in favour of assessee.

Issues Involved:
1. Confirmation of penalty levied under Section 271(1)(c) of the Income-tax Act in respect of exemption claimed under Section 54 of the Act.
2. Non-application of mind by the Assessing Officer (AO) in issuing the penalty notice under Section 274 read with Section 271(1)(c) without specifying the specific charge.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty Levied Under Section 271(1)(c):
The primary issue in this case was whether the Commissioner of Income Tax (Appeals) [CIT(A)] erred in confirming the penalty levied under Section 271(1)(c) of the Income-tax Act concerning the exemption claimed under Section 54 of the Act. The assessee had filed a return for the Assessment Year 2007-08, declaring an income of ?1,42,170/- and claimed a Long Term Capital Gain (LTCG) exemption of ?44,68,390/- under Section 54. Initially, the assessment was completed accepting the return. However, following a search on 31.05.2008, the assessment was reopened, and the exemption claimed under Section 54 was disallowed, bringing the LTCG to tax. The AO initiated penalty proceedings under Section 271(1)(c) for concealment of income or furnishing inaccurate particulars. The assessee contended that the exemption claim was made on a genuine belief that the construction of the new flat would be completed within three years, which did not happen due to delays beyond her control. The AO, however, levied a 100% penalty on the tax sought to be evaded, which was upheld by the CIT(A).

2. Non-application of Mind by AO in Issuing Penalty Notice:
A significant argument raised by the assessee was that the AO issued the penalty notice under Section 274 read with Section 271(1)(c) without specifying whether the penalty was for concealment of income or for furnishing inaccurate particulars. The notice was issued on a standard proforma without striking out the irrelevant clause, thus not conveying to the assessee the specific charge. The Tribunal noted that such an action demonstrated non-application of mind by the AO. The Tribunal referred to various judicial precedents, including the Hon’ble Supreme Court's decision in CIT v/s Reliance Petroproducts (P.) Ltd., and the Hon’ble Bombay High Court's decision in CIT v/s Hiralal Doshi, which emphasized the necessity for the AO to specify the exact charge in the penalty notice. The Tribunal also noted a similar case involving a co-owner, where the CIT(A) had deleted the penalty on the same grounds.

Conclusion:
The Tribunal concluded that the AO failed to crystallize the charge on which the penalty was proposed under Section 271(1)(c), leading to non-compliance with the principles of natural justice. The Tribunal held that the penalty notice issued by the AO was untenable due to non-application of mind. Consequently, the penalty levied by the AO was deleted, and the appeal of the assessee was allowed. The Tribunal emphasized that the AO must clearly specify the charge in the penalty notice to enable the assessee to respond appropriately.

Order Pronounced:
The appeal of the assessee was allowed, and the order was pronounced in the open court on 29th May 2017.

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