2017 (11) TMI 1153 - AT - Income Tax

Penalty u/s 271(1)(c) - non-striking off of the irrelevant clause in the notice - whether assessee has concealed particulars of income or has furnished inaccurate particulars of income? - Held that - As in the notice issued u/s 274 r.w.s. 271(1)(c) of even date, both the limbs of Sec. 271(1)(c) of the Act are reproduced in the proforma notice and the irrelevant clause has not been struck-off. Quite clearly, the observation of the Assessing Officer in the assessment order and non-striking off of the irrelevant clause in the notice clearly brings out the diffidence on the part of Assessing Officer and there is no clear and crystallised charge being conveyed to the assessee u/s 271(1)(c), which has to be met by him. As noted by the Hon ble Supreme Court in the case of Dilip N. Shroff (2007 (5) TMI 198 - SUPREME Court), the quasi-criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice, and in the present case, considering the observations of the Assessing Officer in the assessment order alongside his action of non-striking off of the irrelevant clause in the notice shows that the charge being made against the assessee qua Sec. 271(1)(c) of the Act is not firm and, therefore, the proceedings suffer from non-compliance with principles of natural justice inasmuch as the Assessing Officer is himself unsure and assessee is not made aware as to which of the two limbs of Sec. 271(1)(c) of the Act he has to respond. - Decided against revenue.

Issues Involved:
1. Imposition of penalty under section 271(1)(c) of the Income Tax Act.
2. Validity of the penalty order due to non-striking off irrelevant clauses in the notice issued under section 274 read with section 271(1)(c) of the Act.
3. Jurisdictional challenge due to the appointment of an official liquidator by the Bombay High Court.
4. Non-consideration of judicial decisions by the Commissioner of Income Tax (Appeals) [CIT(A)].

Detailed Analysis:

1. Imposition of penalty under section 271(1)(c) of the Income Tax Act:
The assessee's grievance revolves around the imposition of penalty under section 271(1)(c) for the assessment years 1997-98, 1999-2000, and 2004-05. The penalties were levied due to various disallowances made by the Assessing Officer (AO), including foreign traveling expenses, interest payments, cash credits, and interest on investments. The total disallowance amounted to ?5,53,58,771/- for which a penalty of ?2,38,04,246/- was levied for the assessment year 1997-98, ?2,20,85,000/- for 1999-2000, and ?4,08,34,150/- for 2004-05. The CIT(A) dismissed the appeals, upholding the AO's penalty orders.

2. Validity of the penalty order due to non-striking off irrelevant clauses in the notice issued under section 274 read with section 271(1)(c) of the Act:
The assessee contended that the penalty notices issued under section 274 read with section 271(1)(c) were invalid as the AO did not strike off the irrelevant portions, thereby not specifying whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income." The Tribunal admitted this additional ground, considering it a legal issue going to the root of the matter. The Tribunal referenced multiple judicial precedents, including the Hon'ble Supreme Court's decision in Dilip N. Shroff and the Karnataka High Court's decision in Manjunatha Cotton and Ginning Factory, which emphasized the necessity for the AO to clearly specify the charge in the penalty notice. The Tribunal concluded that the non-striking off of irrelevant clauses indicated non-application of mind by the AO, rendering the penalty notices invalid.

3. Jurisdictional challenge due to the appointment of an official liquidator by the Bombay High Court:
The assessee argued that the penalty orders were bad in law as the official liquidator was appointed by the Bombay High Court, and no proceedings could be initiated against the company without the court's leave, as per section 446 of the Companies Act. The Tribunal recognized this jurisdictional challenge but primarily focused on the invalidity of the penalty notices.

4. Non-consideration of judicial decisions by the CIT(A):
The assessee claimed that the CIT(A) did not consider various judicial decisions submitted during the appellate proceedings. The Tribunal, while addressing the primary issue of the invalid penalty notices, implicitly acknowledged this grievance by admitting the additional ground and referencing relevant judicial precedents that supported the assessee's position.

Conclusion:
The Tribunal allowed the assessee's appeals, holding that the penalty notices issued under section 274 read with section 271(1)(c) were invalid due to non-application of mind by the AO, as evidenced by the failure to strike off irrelevant portions. Consequently, the penalties imposed under section 271(1)(c) for the assessment years 1997-98, 1999-2000, and 2004-05 were deleted. The Tribunal did not delve into other arguments raised by the assessee, as the primary issue of invalid penalty notices was sufficient to decide the appeals in favor of the assessee.

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