2018 (3) TMI 891 - AT - Income Tax

Penalty u/s 27(1)(c) - non specification of charge - defective notice - Held that - Notice issued by the AO u/s. 271(1)(c) read with Section 274 of the Act is bad in law as it does not specify which limb of section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars. Therefore, the penalty in dispute is not sustainable in the eyes of law - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the penalty order under Section 271(1)(c) of the Income Tax Act.
2. Whether the penalty was imposed for concealment of income or furnishing inaccurate particulars of income.

Issue-wise Detailed Analysis:

1. Validity of the Penalty Order under Section 271(1)(c) of the Income Tax Act:

The primary issue raised by the assessee was the validity of the penalty order passed under Section 271(1)(c) of the Income Tax Act. The assessee argued that the notice issued under Section 274 read with Section 271(1)(c) was defective as it did not specify whether the penalty proceedings were initiated for concealment of income or for furnishing inaccurate particulars of income. The notice merely ticked options without a clear indication, making it non-discernable and thus invalid.

The assessee supported this argument by citing several judicial precedents, including:
- ITAT Delhi decision in ABR Auto Pvt. Ltd. vs. ACIT.
- ITAT 'A' Bench, New Delhi decision in Ashok Kumar Chordia vs. DCIT.
- Karnataka High Court decision in CIT & Ors. vs. M/s Manjunatha Cotton and Ginning Factory & Ors.
- Apex Court decision in CIT & Anr. vs. M/s SSA’s Emerald Meadows.

The Tribunal agreed with the assessee's contention, noting that the notice dated 23.12.2011 issued by the AO was indeed in a standard format and did not specify the exact nature of the default, which is contrary to the provisions of law. The Tribunal held that the penalty notice was bad in law as it failed to specify which limb of Section 271(1)(c) the penalty proceedings were initiated under. This view was supported by the decisions cited by the assessee, which emphasized the necessity for clarity in penalty notices to ensure they are legally sustainable.

2. Whether the Penalty was Imposed for Concealment of Income or Furnishing Inaccurate Particulars of Income:

The second issue revolved around the specific grounds on which the penalty was imposed. The Tribunal observed that the AO's notice and the subsequent penalty order were ambiguous, as they did not clearly state whether the penalty was for concealment of income or for furnishing inaccurate particulars of income.

The Tribunal referenced several cases to support its decision:
- In the case of CIT & Anr. vs. M/s SSA’s Emerald Meadows, the Karnataka High Court and subsequently the Supreme Court held that a notice under Section 274 read with Section 271(1)(c) must clearly specify the limb under which the penalty proceedings are initiated.
- The ITAT 'A' Bench, New Delhi, in Ashok Kumar Chordia vs. DCIT, reiterated that ambiguity in the notice regarding the grounds for penalty renders the penalty order unsustainable.
- Similarly, in Rajender Jain vs. ACIT, the ITAT 'D' Bench, New Delhi, held that a penalty order is not sustainable if the AO does not record a clear finding on whether the assessee was guilty of concealment of income or furnishing inaccurate particulars of income.

In conclusion, the Tribunal found that the penalty imposed was not sustainable in the eyes of law due to the defective notice and the lack of clear findings by the AO. The penalty order was therefore cancelled, and the appeal filed by the assessee was allowed.

Order Pronouncement:

The appeal filed by the assessee was allowed, and the penalty in dispute was cancelled. The order was pronounced on 12/03/2018.