2018 (1) TMI 1226 - AT - Income Tax

Penalty u/s 271(1)(c) - non recording of reasons to levy penalty - Held that - In the absence of recording of satisfaction regarding the exact nature of offence, no penalty under section 271(1)(c) can be imposed. In view of the aforesaid, we delete the penalty imposed. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of penalty imposition under section 271(1)(c) of the Income-tax Act, 1961.
2. Recording of satisfaction by the Assessing Officer regarding the specific charge under section 271(1)(c).
3. Adequacy of show cause notice under section 274 read with section 271(1)(c).

Issue-wise Detailed Analysis:

1. Validity of Penalty Imposition under Section 271(1)(c):
The appeal concerns the validity of the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 2010-11. The Assessing Officer added Rs. 6,05,717 to the income of the assessee on the grounds that purchases from Mahavir Enterprises were not genuine. The assessee did not contest this addition. Subsequently, the Assessing Officer issued penalty proceedings alleging furnishing of inaccurate particulars of income and imposed a penalty of Rs. 1,87,167. The first appellate authority confirmed the penalty, prompting the assessee to appeal further.

2. Recording of Satisfaction by the Assessing Officer:
The core issue is whether the Assessing Officer recorded a specific satisfaction regarding the nature of the offence under section 271(1)(c). The appellant argued that the Assessing Officer failed to record whether the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." The impugned assessment order merely stated, "the penalty proceedings u/s 271(1)(c) are initiated," without specifying the exact charge. This omission was deemed a fundamental error invalidating the penalty imposition. The Tribunal referenced several judicial precedents, including CIT v/s Manujunatha Cotton and Ginning Factory, which emphasized the necessity for clear and unambiguous direction in the assessment order to initiate penalty proceedings.

3. Adequacy of Show Cause Notice under Section 274 r/w Section 271(1)(c):
The adequacy of the show cause notice issued under section 274 read with section 271(1)(c) was scrutinized. The Assessing Officer's notices dated 12th March 2013 and 2nd September 2013 did not specify the exact charge, thereby depriving the assessee of a fair opportunity to respond. The Tribunal highlighted that the notice must reveal the application of mind by the Assessing Officer and make the assessee aware of the specific charge. The Tribunal relied on the decision in Vidhyavardhini v/s ACIT, which held that vague and ambiguous notices violate principles of natural justice and invalidate penalty proceedings.

Conclusion:
The Tribunal concluded that the Assessing Officer failed to record satisfaction regarding the exact nature of the offence under section 271(1)(c), and the show cause notices were inadequate. Consequently, the penalty imposed was invalid. The Tribunal allowed the assessee's appeal, deleting the penalty imposed. The decision emphasized the need for precise and clear recording of satisfaction and specific charges in penalty proceedings under section 271(1)(c).

Order Pronouncement:
The order was pronounced in the open court on 19.01.2018, allowing the assessee's appeal.