2017 (12) TMI 258 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee awareness of the charge as framed by the AO in the assessment order dated 20-02-2014 framed u/s 143(3) - Held that - Penalty must be initiated for specific charge has been confirmed. AO while initiating penalty proceedings during the course of assessment does not specify any particular ground for initiating penalty proceedings. Even while issuing notice also he did not specify for which charge the assessee is to be penalised as both the charges, concealment of particulars of income or furnishing of inaccurate particulars of income are different although the consequence of both the charges may be concealed income. - Decided in favour of assessee.

Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act.
2. Concealment of income and furnishing inaccurate particulars of income.
3. Validity of penalty proceedings initiated without specifying the charge.

Issue-Wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c):
The Revenue appealed against the orders of the CIT(A) for assessment years 2002-03 to 2007-08, challenging the deletion of penalties. The CIT(A) had deleted the penalties, concluding that the penalty proceedings were not initiated for a specific charge, thus following the precedents set by the Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory and the Gujarat High Court in the case of Manu Engineering. The CIT(A) also noted that since the additions were made on an estimated basis, no penalty could be levied, referencing decisions from the Rajasthan High Court and other relevant cases.

2. Concealment of Income and Furnishing Inaccurate Particulars of Income:
The core issue was whether the assessee had concealed income or furnished inaccurate particulars of income. The AO had added ?1,82,50,000/- to the assessee's income based on an assumed daily income from Shri Ram Social Club. The CIT(A) reduced this addition, and the Tribunal further reduced it, ultimately deeming the additions as estimates. The AO initiated penalty proceedings under Section 271(1)(c) but did not specify whether it was for concealment of income or furnishing inaccurate particulars, which was a critical point of contention.

3. Validity of Penalty Proceedings Initiated Without Specifying the Charge:
The Tribunal examined whether the penalty proceedings were valid when the AO did not specify the exact charge in the notice issued under Section 271(1)(c). The Tribunal referenced several judicial precedents, including the Bombay High Court's decision in CIT v. Samson Perinchery, which emphasized that the AO must be clear about the specific charge when initiating penalty proceedings. The Tribunal noted that the AO's notice was ambiguous and did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars, thus violating principles of natural justice.

The Tribunal also referred to the decision of the Karnataka High Court in Manjunatha Cotton and Ginning Factory, which held that merely stating that penalty proceedings are initiated does not satisfy the requirement of a clear direction. The Tribunal concluded that the AO's failure to specify the charge rendered the penalty proceedings invalid.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the penalties, emphasizing that the AO did not specify the particular charge when initiating penalty proceedings. The Tribunal reiterated that both concealment of income and furnishing inaccurate particulars of income are distinct charges and must be clearly stated. The appeals filed by the Revenue were dismissed, confirming the deletion of penalties for all the assessment years in question.

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