2018 (4) TMI 1420 - AT - Income Tax

Penalty levied u/s. 271(1)(c) - defective notice - non specification of charge - non striking off one of the limbs - Held that - The notice issued by the Assessing Officer u/s. 274 r.w.s. 271(1)(c) of the Act is on account of non-application of mind and therefore on this account itself the penalty imposed u/s.271(1)(c) is liable to be deleted. Thus, we direct the Assessing Officer to delete the penalty levied u/s.271(1)(c) of the Act. See Meherjee Cassinath Holdings v. ACIT 2017 (5) TMI 904 - ITAT MUMBAI - Decided in favour of assessee

Issues Involved:
1. Validity of penalty initiation under Section 271(1)(c) of the Income Tax Act due to lack of specific charge in the notice issued under Section 274 read with Section 271.
2. Non-striking off of irrelevant clauses in the penalty notice.
3. Application of principles of natural justice in penalty proceedings.

Issue-wise Detailed Analysis:

1. Validity of Penalty Initiation under Section 271(1)(c) Due to Lack of Specific Charge:
The primary issue raised by the assessee was that the penalty initiation under Section 271(1)(c) was invalid as the notice issued under Section 274 read with Section 271 did not specify whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income." The assessee argued that the notice was issued in a mechanical manner without striking off the irrelevant charge, making the initiation of penalty proceedings and the subsequent penalty order bad in law. The assessee relied on several judicial precedents, including CIT v. SSA’s Emerald Meadow and Meherjee Cassinath Holdings Private Limited v. ACIT, which supported the contention that a penalty notice must clearly specify the charge.

2. Non-striking off of Irrelevant Clauses in the Penalty Notice:
The Tribunal examined the notice issued under Section 274 read with Section 271 and found that the Assessing Officer (AO) did not strike off the irrelevant charge/limb for which the penalty proceedings were initiated. The AO recorded in the penalty order that the penalty was levied for furnishing inaccurate particulars of income, but this was not specified in the notice. The Tribunal referred to the decision in Meherjee Cassinath Holdings, where it was held that non-striking off the relevant clause in the notice indicates that the charge against the assessee is not firm, leading to non-compliance with principles of natural justice.

3. Application of Principles of Natural Justice in Penalty Proceedings:
The Tribunal emphasized that Section 271(1)(c) empowers the AO to impose a penalty if there is concealment of income or furnishing of inaccurate particulars of income. These two situations denote different connotations, and it is imperative for the assessee to be made aware of the specific charge to defend accordingly. The Tribunal cited the Hon’ble Supreme Court’s decision in Dilip N. Shroff, which highlighted the necessity of a clear and specific charge in the penalty notice to comply with principles of natural justice. The Tribunal also referred to the Karnataka High Court’s decision in M/s. Manjunatha Cotton and Ginning Factory, which mandated that the notice should set out the grounds specifically to avoid vagueness and ambiguity.

The Tribunal concluded that the notice issued by the AO suffered from non-application of mind, as it did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars of income. This lack of specificity and clarity in the notice violated the principles of natural justice, making the penalty proceedings untenable.

Conclusion:
The Tribunal held that the penalty imposed under Section 271(1)(c) was invalid due to the non-application of mind by the AO in issuing a vague and ambiguous notice. The Tribunal directed the AO to delete the penalty levied under Section 271(1)(c) of the Act. Consequently, the appeal filed by the assessee was allowed.

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