2017 (11) TMI 1164 - AT - Income Tax

Levy of Penalty u/s 271(1)(c) - assessing the long term capital gains on sale of landed property - invalid notice - non-striking of the irrelevant column - Held that - From the notice issued by the AO, it is observed that the assessing officer had issued the notice for concealment of income or for furnishing of inaccurate particulars. As per the notice, the assessing officer was not sure of which limb of the offence he sought the explanation from the assessee, whether it was for the concealment of income or for furnishing of inaccurate particulars. Unless the notice issued u/s 271(1)(c) is valid the penalty order cannot be held to be valid. The assessing officer did not strike off the irrelevant column in the notice and made known the assessee whether the penalty was initiated for the concealment of income or for furnishing the inaccurate particulars. In the assessment order also the AO simply recorded that the penalty proceedings u/s 271(1)(c) are initiated separately. Neither in the assessment order nor in the penalty notice, the assessing officer has put the assessee on notice for which offence, the penalty u/s 271 was initiated - Decided in favour of assessee.

Summary

Issues Involved:
1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the notice issued under Section 271(1)(c) without specifying the charge.

Issue-wise Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) [CIT(A)]-1, Visakhapatnam, which upheld the penalty imposed by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 2008-09. The AO conducted a survey under Section 133A and discovered that the assessee had not filed a return of income despite the due date having expired. The AO assessed a total income of ?16,17,641/- from long-term capital gains on the sale of property and initiated penalty proceedings under Section 271(1)(c). The AO issued a show-cause notice, and due to no response from the assessee, imposed a penalty of ?3,36,071/-, being 100% of the tax sought to be evaded. The CIT(A) dismissed the assessee's appeal and confirmed the penalty.

2. Validity of the notice issued under Section 271(1)(c) without specifying the charge:
The assessee filed an additional ground challenging the validity of the penalty notice under Section 271(1)(c), arguing that the notice did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars of income, thus leaving the assessee in a confused state. The Tribunal admitted this additional ground, noting that the AO must be specific about the charge in the notice calling for an explanation. The notice issued by the AO was observed to be ambiguous, stating, "you have concealed the particulars of your income or furnished inaccurate particulars of such income," without specifying which charge the assessee needed to respond to. This ambiguity was found to be in violation of the principles laid down by the Hon’ble High Court of AP and Karnataka in similar cases, which mandated that the notice must clearly specify the charge to allow the assessee to defend themselves properly.

Tribunal's Decision:
The Tribunal held that the penalty notice issued under Section 271(1)(c) was invalid due to the failure to specify the exact charge against the assessee. The Tribunal emphasized that the AO must clearly state whether the penalty is for concealment of income or furnishing inaccurate particulars, as per the jurisdictional High Court's rulings. Consequently, the penalty imposed by the AO was cancelled, and the appeal of the assessee was allowed.

Conclusion:
The Tribunal concluded that the penalty proceedings under Section 271(1)(c) were invalid due to the defective notice issued by the AO, which did not specify the charge clearly. The Tribunal allowed the appeal of the assessee, cancelling the penalty imposed.