2018 (1) TMI 22 - AT - Income Tax

Penalty u/s 271(1)(c) of the IT Act - addition made u/s.68 of the IT Act - validity of notice - Held that - There can be no doubt that penalty u/s. 271(1)(c) of the Act is levied for concealing particulars of income or for furnishing inaccurate particulars of such Income, which are the two limbs of this provision - In the present case, neither the assessee nor anyone else could make out as to whether the notice u/s. 274 r.w.S. 271 of the Act was issued for concealing the particulars of income or for furnishing inaccurate particulars of such income disabling it to meet with the case of the Assessing Officer. There are a catena of judgments highlighting the necessity for identifying the charge for which the assessee is being visited and in all those decisions, Hon ble Courts have repeatedly held that where the jurisdictional notice is vague, similar to the one in the present case, the consequent levy cannot be sustained. Penalty set aside - appeal of the assessee is allowed.

Issues Involved:
1. Validity of penalty notice under section 274 read with section 271(1)(c) of the IT Act.
2. Imposition of penalty for addition under section 68 of the IT Act.
3. Deletion of penalty for addition under section 50C of the IT Act.

Issue-wise Detailed Analysis:

1. Validity of Penalty Notice under Section 274 r.w.s. 271(1)(c):

The primary issue was whether the penalty notice issued by the Assessing Officer (AO) was valid. The AO issued a standard format notice without specifying if the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." The tribunal noted that the exact charge was not mentioned, making the notice vague. This ambiguity deprived the assessee of a fair opportunity to respond, violating principles of natural justice. The tribunal cited several judicial pronouncements, including the Hon'ble Karnataka High Court in CIT v. Manjunatha Cotton and Ginning Factory and the Hon'ble Bombay High Court in CIT v. Samson Perinchery, which held that such vague notices invalidate the penalty proceedings. Consequently, the tribunal concluded that the penalty notice was invalid, rendering the penalty proceedings void.

2. Imposition of Penalty for Addition under Section 68:

The AO had imposed a penalty under section 271(1)(c) for an addition made under section 68, where the assessee received a gift from an NRI donor. The assessee argued that all necessary documentary evidence was provided to substantiate the gift, including confirmation from the donor and bank statements. The tribunal emphasized that penalty proceedings are distinct from assessment proceedings and require independent inquiry. The AO failed to conduct an independent inquiry during the penalty proceedings and relied solely on the confirmation of the addition by appellate authorities. The tribunal referenced various cases, including Mohd. Haji Adam & Co. V. DCIT, to assert that confirmation of addition does not automatically justify penalty imposition. The tribunal found no merit in the penalty imposed under section 68, considering the AO's lack of independent inquiry and non-application of mind.

3. Deletion of Penalty for Addition under Section 50C:

The CIT(A) had deleted the penalty related to the addition made under section 50C of the IT Act. The tribunal supported this decision, referencing the case of Renu Hingorani and the Hon'ble Supreme Court's decision in Reliance Utilities & Power Ltd., which established that the decline of a legal claim does not warrant penalty under section 271(1)(c). Furthermore, the tribunal noted that the tax effect in the Revenue's appeal was less than ?10 lakhs, leading to the dismissal of the appeal on the grounds of tax effect.

Conclusion:

The tribunal allowed the assessee's appeal, declaring the penalty notice invalid due to vagueness and non-application of mind by the AO. The penalty imposed under section 68 was also dismissed due to the lack of independent inquiry. The Revenue's appeal regarding the deletion of penalty under section 50C was dismissed due to low tax effect. The order was pronounced in the open court on 22/12/2017.

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