2017 (11) TMI 172 - AT - Income Tax

Penalty u/s 271(1)(c) - invalid notice - non specification of grounds - Held that - Having regard to the fact that in the instant case the notice issued u/s 274 r.w.s. 271(1)(c) of the Act dated 29.03.2012 does not specify the grounds of initiation of penalty proceedings, the same is invalid and untenable in the eyes of law. Accordingly, the penalty imposed u/s 271(1)(c) of the Act is directed to be deleted on this count itself. - Decided in favour of assessee.

Issues Involved:
1. Validity of the order passed by the Income Tax Officer under Section 271(1)(c) of the Income Tax Act, 1961.
2. Imposition of penalty under Section 271(1)(c) of the Act.
3. Non-recording of satisfaction by the Assessing Officer before initiating and imposing penalty.
4. Reliance on both limbs of Section 271(1)(c) without specific invocation in the show cause notices and assessment order.
5. Imposition of penalty on grounds different from those mentioned in the show cause notice and assessment order.

Detailed Analysis:

1. Validity of the Order Passed by the Income Tax Officer under Section 271(1)(c):
The assessee challenged the validity of the penalty order passed by the Income Tax Officer under Section 271(1)(c) of the Income Tax Act, 1961, asserting that the order was invalid and bad in law. The Tribunal admitted additional grounds of appeal, following the Supreme Court's judgments in National Thermal Power Co. Ltd. and Jute Corporation of India Ltd., as these grounds involved points of law and did not require further investigation of facts. The Tribunal emphasized that the issues raised went to the root of the jurisdiction of the Assessing Officer to impose penalty under Section 271(1)(c).

2. Imposition of Penalty under Section 271(1)(c):
The common issue in both appeals was the penalty imposed by the Assessing Officer under Section 271(1)(c) for the alleged concealment of income. The Tribunal noted that the penalty proceedings were initiated based on an addition of ?68,20,000/- representing unaccounted amounts received by the assessee for the sale of flats. The Assessing Officer levied a penalty of ?23,87,000/-, which was upheld by the CIT(A). However, the Tribunal found that the penalty notice issued under Section 274 read with Section 271(1)(c) was in a standard proforma without striking off the irrelevant portion, indicating non-application of mind by the Assessing Officer. The Tribunal referred to several judgments, including those of the Supreme Court and High Courts, which held that such non-specific notices are invalid.

3. Non-recording of Satisfaction by the Assessing Officer:
The Tribunal observed that the Assessing Officer did not record any satisfaction before initiating and imposing the penalty, which is a legal requirement. The lack of specific satisfaction in the penalty notice and assessment order was a significant point raised by the assessee. The Tribunal held that this omission violated the principles of natural justice, as the assessee was not made aware of the specific charge against him, thus affecting his ability to defend himself properly.

4. Reliance on Both Limbs of Section 271(1)(c) Without Specific Invocation:
The Tribunal noted that the penalty notice issued by the Assessing Officer mentioned both limbs of Section 271(1)(c) (concealment of income and furnishing inaccurate particulars) without specifying which limb was being invoked. This non-specific invocation was deemed a legal infirmity, as it did not provide the assessee with clear information about the charge he had to respond to. The Tribunal emphasized that the two limbs of Section 271(1)(c) have different connotations, and the assessee must be made aware of the specific charge.

5. Imposition of Penalty on Grounds Different from Those Mentioned in the Show Cause Notice and Assessment Order:
The Tribunal found that the penalty was imposed on grounds different from those mentioned in the show cause notice and assessment order. The assessment order indicated that the penalty proceedings were initiated for concealment of income, but the penalty notice included both limbs of Section 271(1)(c). This contradiction indicated a lack of clarity and firm charge against the assessee, violating the principles of natural justice. The Tribunal referred to the Supreme Court's judgment in Dilip N. Shroff, which highlighted the importance of clear and specific charges in penalty proceedings.

Conclusion:
The Tribunal concluded that the penalty notices issued under Section 274 read with Section 271(1)(c) were invalid due to non-application of mind and lack of specific charges. Consequently, the penalties imposed were directed to be deleted. The appeals for both Assessment Years 2005-06 and 2006-07 were allowed, and the orders pronounced in the open court on 1st September 2017.

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