2017 (11) TMI 500 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of depreciation on the property in respect of newly purchased property - Held that - The concealment involves knowledge on part of the assessee of the real income while giving or disclosing the particulars of income. The furnishing of inaccurate particulars of income on the other hand includes items which have been though shown in the return of income but is not correct or has been wrongly shown or clarified. The Assessing Officer at the time of issuance of notice to the assessee must disclose to the assessee about the charge on which he proposes to initiate or levy the penalty under this section. The show cause notice issued should be without any ambiguity and has to be very specific about the charge. The Assessing Officer in the assessment order has initiated the penalty proceedings under section 271(1)(c) under both the limbs and has failed to specify in the show cause notice (u/s 274 read with section 271(1)(c) about the charge for which he wishes to initiate penalty proceedings. Finally the penalty has been levied for furnishing of inaccurate particulars. This shows that he has not applied his mind or was specific about his satisfaction under which limbs which intends to initiate or levy of penalty. - Appeal of the assessee is allowed.

Summary

Issues:
Levy of penalty under section 271(1)(c) for disallowance of depreciation on newly purchased properties.

Analysis:

1. Levy of Penalty: The assessee filed an appeal against the penalty imposed for disallowance of depreciation on newly purchased properties. The Assessing Officer disallowed depreciation on the cost of land included in the property price. The assessee claimed it was an oversight by auditors, voluntarily surrendering the land cost. The issue raised was the initiation and levy of penalty under section 271(1)(c). The counsel argued that the Assessing Officer did not specify whether the penalty was for concealing income particulars or furnishing inaccurate particulars. The penalty was ultimately levied for furnishing inaccurate particulars. The counsel relied on judgments emphasizing the necessity of clarity in specifying the charge for penalty initiation.

2. Legal Issue: The Assessing Officer initiated penalty proceedings under both limbs of section 271(1)(c) without specifying the charge in the notice. The Karnataka High Court judgment highlighted the importance of clearly stating the grounds for penalty initiation to allow the assessee to contest the proceedings. The court emphasized that penalty should be imposed only on the grounds specified in the notice, ensuring adherence to principles of natural justice.

3. Judicial Precedents: The judgment cited various cases, including CIT vs. Manjunath Cotton Ginning Factory and CIT vs. SSA'S Emerald Meadows, stressing the need for specificity in penalty initiation notices. The court held that penalty proceedings should align with the grounds mentioned in the notice to uphold principles of natural justice. The Delhi High Court also reiterated the requirement for clarity in indicating the section under which penalty proceedings are initiated in the assessment order.

4. Decision: The tribunal found that the Assessing Officer failed to specify the charge for penalty initiation in the notice, leading to ambiguity. As penalty was ultimately levied for furnishing inaccurate particulars, the tribunal held that the penalty order lacked clarity and specificity. Citing the Karnataka High Court's rulings, the tribunal concluded that the penalty of &8377;6,83,110/- was not justified and directed its deletion. The appeal of the assessee was allowed based on the lack of clarity in penalty initiation and levy.

In conclusion, the tribunal's decision focused on the necessity of clear and specific penalty initiation notices to uphold principles of natural justice, ensuring that penalties are imposed based on the grounds communicated to the assessee.