2018 (5) TMI 59 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance under the head Impairment of assets and short fall of the bank guarantee - non specification of charge - Held that - When the assessee has not been specifically made aware of the charges leveled against him as to whether there is a concealment of income or furnishing of inaccurate particulars of income on his part, the penalty u/s 271(1)(c) of the Act is not sustainable. A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. See Reliance Petro Products Pvt. Ltd. (2010 (3) TMI 80 - SUPREME COURT) - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the penalty notice under Section 274.
2. Specificity of the charge under Section 271(1)(c).
3. Complete factual disclosure by the assessee.
4. Interpretation of the limbs of penalty under Section 271(1)(c).
5. Application of Explanation 1 to the charge of furnishing inaccurate particulars.
6. Assessee's discharge of onus of probable explanation and bonafide conduct.

Issue-Wise Detailed Analysis:

1. Validity of the Penalty Notice under Section 274:
The assessee challenged the validity of the notice issued under Section 274, arguing it was not valid as it did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. The Tribunal noted that the notice was vague and did not specifically inform the assessee of the exact charge. This was supported by the Karnataka High Court's decision in CIT vs. Manjunatha Cotton and Ginning Factory, which emphasized that a valid penalty notice must clearly state the grounds for the penalty.

2. Specificity of the Charge under Section 271(1)(c):
The Tribunal found that the penalty notice failed to specify whether the penalty was for concealment of income or for furnishing inaccurate particulars. The notice had a tick mark against both charges, which was deemed insufficient. The Tribunal reiterated the necessity for clarity and specificity in the notice, as laid down in the Manjunatha Cotton case, to ensure the assessee is aware of the exact charge.

3. Complete Factual Disclosure by the Assessee:
The assessee argued that it had made complete factual disclosures in its accounts and returns, which should suffice to nullify the penalty. The Tribunal agreed, noting that the assessee had provided a detailed explanation for the debited amount under 'Impairment of assets' and the shortfall in the bank guarantee. The Tribunal cited the Delhi High Court's decision in CIT vs. IFCI Limited, which held that a claim not accepted does not per se amount to furnishing inaccurate particulars.

4. Interpretation of the Limbs of Penalty under Section 271(1)(c):
The Tribunal addressed the CIT(A)'s interpretation that there are three limbs of penalty under Section 271(1)(c). The Tribunal clarified that the penalty provisions should be interpreted strictly and any ambiguity should favor the assessee. The Tribunal found that the CIT(A)'s interpretation was incorrect and vitiated the penalty order.

5. Application of Explanation 1 to the Charge of Furnishing Inaccurate Particulars:
The Tribunal examined whether Explanation 1 to Section 271(1)(c) was correctly applied. The explanation pertains to cases where the assessee is deemed to have concealed income or furnished inaccurate particulars. The Tribunal found that the AO had not provided sufficient evidence to prove that the assessee had furnished inaccurate particulars intentionally.

6. Assessee's Discharge of Onus of Probable Explanation and Bonafide Conduct:
The Tribunal considered the assessee's explanation regarding the impairment of assets and the shortfall in the bank guarantee. It concluded that the assessee had acted in good faith and provided a plausible explanation. The Tribunal cited the Supreme Court's decision in Reliance Petro Products Pvt. Ltd., which held that a mere incorrect claim does not amount to furnishing inaccurate particulars.

Conclusion:
The Tribunal concluded that the penalty of ?52,83,477/- under Section 271(1)(c) was not sustainable as the notice was vague, the assessee had made complete disclosures, and there was no evidence of intentional concealment or furnishing of inaccurate particulars. The penalty was ordered to be deleted, and the appeal filed by the assessee was allowed.