2017 (8) TMI 1123 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - validity of notice - non application of mind by AO - non struck off all irrelevant portion in the notice so as to charge the assessee whether he proposed to levy penalty on concealment of particulars of income or furnishing of inaccurate particulars of income - Held that - on perusal of notice issued by the AO u/s 274 r.w.s. 271(1)(c) we find that the notice is issued in a printed form without specifying on which limb the AO is proposed to initiate the penalty. Sending the notice in a printed form of notice where all the grounds mentioned in section 271(1)(c), are mentioned, would not satisfy the requirement of law. Even in the notice issued u/s 274, the AO mentioned both the grounds, i.e. concealment of income or furnishing of inaccurate particulars of income, but he has levied penalty for furnishing of inaccurate particulars of income. From the above, it is clear that the AO has not arrived at a satisfaction before initiation of penalty proceedings. Notice issued by the AO u/s 274 r.w.s. 271(1)(c) is vague in nature which did not specify as to whether penalty proceedings is initiated for concealment of particulars of income or for furnishing inaccurate particulars of income and hence, the notice issued u/s 274 r.w.s. 271(1)(c) is invalid and consequent initiation of penalty proceedings is absurd and redundant. Therefore, the consequent levy of penalty u/s 271(1)(c) in all the cases under appeal is void ab initio; hence the penalty orders are hereby quashed. - Decided in favour of assessee.

Issues Involved:
1. Legality of the penalty notice issued under Section 274 read with Section 271(1)(c) of the Income-tax Act, 1961.
2. Validity of penalty levied for concealment of income or furnishing inaccurate particulars of income.

Issue-wise Detailed Analysis:

1. Legality of the Penalty Notice:

The assessees challenged the initiation of penalty proceedings on the ground that the notice issued under Section 274 read with Section 271(1)(c) was vague. The notice did not specify whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. The assessees argued that the notice was a printed form without striking off the irrelevant portions, indicating non-application of mind by the Assessing Officer (AO).

The Tribunal observed that the AO issued a notice in a printed form without specifying the grounds on which the penalty was proposed. It was held that the AO must arrive at a satisfaction as to whether the penalty is for concealment of income or for furnishing inaccurate particulars of income before issuing the notice. Failure to specify the grounds violates the principles of natural justice, as the assessee would not know under which limb to justify their case.

The Tribunal relied on the decision of the Hon’ble Karnataka High Court in the case of CIT vs Manjunatha Cotton & Ginning Factory Ltd 359 ITR 565 (Kar), which held that the initiation of penalty proceedings must be clear and specific. The Tribunal also referred to the decision of the Hon’ble Bombay High Court in the case of CIT vs Samson Perinchery, which supported the view that a vague notice invalidates the penalty proceedings.

The Tribunal concluded that the notice issued by the AO was vague and did not specify the grounds for the penalty, making the initiation of penalty proceedings invalid.

2. Validity of Penalty for Concealment of Income or Furnishing Inaccurate Particulars:

The assessees also challenged the penalty on merits, arguing that they had provided necessary evidence to support their claims of long-term capital gain, agricultural income, and unexplained money. The AO rejected the explanations and levied a penalty for concealment of income or furnishing inaccurate particulars of income.

The Tribunal noted that the AO had levied the penalty based on the rejection of the assessees' explanations without proper consideration. The Tribunal emphasized that the AO must specify whether the penalty is for concealment of income or for furnishing inaccurate particulars of income.

The Tribunal referred to the decision of the Hon’ble Supreme Court in the case of CIT vs SSA’s Emerald Meadows, which upheld the Karnataka High Court’s decision that a vague notice invalidates the penalty proceedings. The Tribunal also considered the decision of the ITAT, Mumbai Bench in the case of Dr. Sarita Milind Davare, which held that a notice must specify the charge for which the penalty is issued.

The Tribunal concluded that the penalty proceedings were invalid due to the vague notice and lack of specific grounds for the penalty. As a result, the penalty orders were quashed, and the appeals filed by the assessees were allowed.

Conclusion:

The Tribunal held that the penalty notices issued under Section 274 read with Section 271(1)(c) were vague and did not specify whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. This non-application of mind by the AO invalidated the penalty proceedings. Consequently, the penalty orders were quashed, and the appeals filed by the assessees were allowed.

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