2017 (12) TMI 1263 - AT - Income Tax

Penalty u/s. 271(1)(c) - non specification of charge - defective notice - Held that - Assessing Officer has not specified the charge on which he has imposed the penalty u/s. 271(1)(c) of the Act. The Assessment Order as well as the penalty order only show that the Income Tax Officer is satisfied that the income of the assessee falls within the purview of section 271(1)(c) of the Act. The Assessing Officer did not even mention that the assessee either concealed his income or furnished inaccurate particulars of such income. The issue of whether the penalty levied u/s. 271(1)(c) of the Act is sustainable in law in the absence of specific charge in the notice issued u/s. 274 r.w.s. 271(1)(c) - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of penalty order under Section 271(1)(c) due to lack of specific charges in the notice issued under Section 274 read with Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Validity of Penalty Order under Section 271(1)(c):
- Admission of Additional Grounds: The assessee raised additional grounds questioning the validity of the penalty order under Section 271(1)(c) on the basis that the notice under Section 274 read with Section 271(1)(c) was issued mechanically without specifying any charge. The Tribunal admitted these additional grounds as they were legal in nature and fundamental to the penalty's validity.

- Arguments by Assessee: The assessee argued that the Assessing Officer (AO) did not specify whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income" in both the assessment and penalty orders. The AO merely stated that the income fell within the purview of Section 271(1)(c) without detailing the specific charge. This lack of specificity was contended to render the penalty order unsustainable in law, supported by precedents from Coordinate Benches and High Courts.

- Arguments by Revenue: The Departmental Representative (DR) argued against admitting the additional grounds as they were not raised before the lower authorities.

- Tribunal's Findings: The Tribunal, after hearing both parties, found that the AO failed to specify the charge in the penalty notice and orders, which is a requirement for imposing penalties under Section 271(1)(c). The Tribunal referenced multiple decisions, including:
- Case of M/s Orbit Enterprises v. ITO where it was held that the AO must make the assessee aware of the specific charge for penalty under Section 271(1)(c) to comply with natural justice principles.
- High Court of Telangana and Andhra Pradesh in PCIT v. Smt. Baisetty Revathi, which emphasized that the show-cause notice must clearly state whether the penalty is for concealment of income or furnishing inaccurate particulars of income.

- Legal Precedents: The Tribunal cited several precedents that reinforced the necessity for clarity in penalty notices:
- M/s Orbit Enterprises v. ITO: Highlighted the need for specific charges in penalty notices to avoid violating natural justice principles.
- PCIT v. Smt. Baisetty Revathi: Emphasized that ambiguous penalty notices are defective and cannot sustain penalties.
- Karnataka High Court in Manjunatha Cotton and Ginning Factory: Stressed that the grounds for penalty must be clearly stated in the notice to avoid vagueness and ensure fair opportunity for defense.
- Gujarat High Court in Manu Engineering Works: Asserted that the AO must give a positive finding on whether the penalty is for concealment or inaccurate particulars.

- Conclusion: The Tribunal concluded that the penalty orders for the Assessment Years 2005-06 and 2006-07 were not sustainable due to the absence of specific charges in the notices and orders. This lack of specificity violated the principles of natural justice and rendered the penalty proceedings invalid.

Outcome:
- The appeals of the assessee were allowed, and the penalty orders were deemed unsustainable.

Order Pronouncement:
- The order was pronounced in the open court on December 20, 2017.