2017 (7) TMI 776 - HC - Income Tax

Penalty levied u/s. 271(1)(c) - proof of concealment of particulars of income or furnishing of inaccurate particulars - Held that - No doubt, in the present case, the assessee seems to have submitted her explanation on merits without raising a doubt as to what was the precise allegation leveled against her. However, we are more concerned with the principle involved and not just the isolated case of its application against the assessee. Further, the penalty order demonstrates that the Assessing Officer was not even certain as to what was the finding on the strength of which he imposed the penalty. This is clear from the fact that the Assessing Officer recorded that he was satisfied that the assessee had concealed/furnished inaccurate particulars of income. In the absence of a clear finding by the Assessing Officer himself, the benefit of doubt cannot be given to the revenue merely because the assessee did not complain of vagueness in the show-cause notice earlier. On principle, when penalty proceedings are sought to be initiated by the revenue under Section 271(1)(c) of the Act of 1961, the specific ground which forms the foundation therefor has to be spelt out in clear terms. Otherwise, an assessee would not have proper opportunity to put forth his defence. When the proceedings are penal in nature, resulting in imposition of penalty ranging from 100% to 300% of the tax liability, the charge must be unequivocal and unambiguous. When the charge is either concealment of particulars of income or furnishing of inaccurate particulars thereof, the revenue must specify as to which one of the two is sought to be pressed into service and cannot be permitted to club both by interjecting an or between the two, as in the present case. This ambiguity in the show-cause notice is further compounded presently by the confused finding of the Assessing Officer that he was satisfied that the assessee was guilty of both. - Decided against revenue

Issues Involved:
1. Deletion of penalty levied under Section 271(1)(c) of the Income-tax Act, 1961.
2. Consideration of provisions under Section 271(1B) and the judicial pronouncement in MAK Data Pvt. Ltd. vs. CIT.

Issue-wise Detailed Analysis:

1. Deletion of penalty levied under Section 271(1)(c) of the Income-tax Act, 1961:

The core issue in this appeal was whether the Tribunal was correct in law in deleting the penalty levied under Section 271(1)(c) of the Income-tax Act, 1961. The respondent-assessee, deriving income from house property and bank deposits, filed a tax return admitting a total loss of ?73,25,086 for the assessment year 2010-11. The assessment under Section 143(3) resulted in disallowance of interest on borrowed capital amounting to ?54,74,678 and addition of ?15,60,000 towards unexplained cash credit deposit. Consequently, the loss determined upon assessment was ?2,90,408.

The assessee was issued a penalty notice under Section 271(1)(c) on 22.03.2013, which she contested citing the disallowance was on an agreed basis and that she could not establish the source of the cash credit deposit. Despite her explanation, the Deputy Commissioner imposed a penalty of ?20,71,750 for concealing/furnishing inaccurate particulars of income. The Commissioner of Income-tax (Appeals) upheld the penalty order.

In her appeal before the Income-tax Appellate Tribunal, the assessee argued that the show-cause notice did not specify whether the penalty was for concealment of particulars of income or furnishing inaccurate particulars. The Tribunal, relying on the Karnataka High Court judgment in M/s. Manjunatha Cotton and Ginning Factory, held that a vague show-cause notice invalidates the penalty.

2. Consideration of provisions under Section 271(1B) and the judicial pronouncement in MAK Data Pvt. Ltd. vs. CIT:

The revenue argued that the assessee’s failure to raise the issue of ambiguity in the show-cause notice before the lower authorities indicated her awareness of the allegations. The counsel for the revenue cited the Supreme Court judgment in MAK Data Pvt. Ltd. vs. CIT, asserting that the Assessing Officer need not record his satisfaction in a particular manner. However, the Tribunal noted that the penalty order lacked a conclusive finding on whether the penalty was for concealment or furnishing inaccurate particulars.

The High Court examined the Karnataka High Court’s judgment in M/s. Manjunatha Cotton and Ginning Factory, which emphasized that penalty proceedings under Section 271 must be clear and specific about the grounds for imposition. The Gujarat High Court in Commissioner of Income Tax vs. Manu Engineering Works also mandated a clear finding on whether there was concealment or furnishing of inaccurate particulars.

The High Court distinguished the present case from K.P. Madhusudhanan vs. CIT, where the Supreme Court held that express invocation of Explanation 1(B) is unnecessary. The High Court stressed that the assessee must be informed of the specific charge against them, as concealment and furnishing inaccurate particulars are distinct acts with serious consequences.

The High Court concluded that the Assessing Officer’s ambiguous penalty order and the vague show-cause notice violated principles of natural justice. The penalty proceedings must specify the exact charge to allow the assessee to mount a proper defense. The appeal was dismissed, upholding the Tribunal’s decision to delete the penalty due to the lack of a clear and unequivocal charge.

Conclusion:
The High Court dismissed the revenue's appeal, affirming the Tribunal's decision to delete the penalty under Section 271(1)(c) due to the ambiguity in the show-cause notice and the lack of a clear finding by the Assessing Officer. The judgment underscored the necessity for specificity and clarity in penalty proceedings under the Income-tax Act.

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