2018 (5) TMI 1575 - AT - Income Tax

Penalty levied u/s 271(1)(c) - unexplained cash credits u/s 68, 69 and 69C - validity of notice - absence of specific charge - Held that - As decided in Sachin Arora vs. ITO 2018 (3) TMI 1026 - ITAT AGRA the notice u/s 274 is a mandatory statutory notice without which, the initiation of penalty proceedings would be nugatory, nay, non est in the eye of the law. The argument of the Department that where initiation of penalty in the Assessment Order, the levy in the penalty order and the confirmation of such penalty in the first appellate order are on one and the same charge, the contents of the notice u/s 274 are of no effect, the assessee having been duly apprised of the specific charge against them, is not acceptable in law. The notices are nebulous and, therefore, they are not valid in law - Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of Delay in Filing Appeal
2. Validity of Penalty under Section 271(1)(c) of the IT Act
3. Specificity of Charge in Penalty Notice
4. Application of Explanation 1 to Section 271(1)(c)

Issue-Wise Detailed Analysis:

1. Condonation of Delay in Filing Appeal:
The assessee argued that the delay in filing the appeal was due to the non-receipt of the CIT(A)'s order. The appeal was filed within two months of receiving the order. The tribunal found that the assessee was prevented by sufficient cause from filing the appeal in time and accordingly condoned the delay.

2. Validity of Penalty under Section 271(1)(c) of the IT Act:
The assessee challenged the confirmation of penalty imposed under Section 271(1)(c), arguing that the penalty was wrongly and illegally confirmed by the CIT(A). The tribunal noted that the penalty was imposed due to additions made under unexplained cash credits, unexplained investments, and unexplained expenditure, which were confirmed by the CIT(A).

3. Specificity of Charge in Penalty Notice:
The assessee contended that the penalty notices issued under Section 274 read with Section 271(1)(c) were not in conformity with the law as they did not specify whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. The tribunal referred to multiple case laws, including "CIT vs. Manjunath Cotton and Ginning Factory," which emphasized that the notice under Section 274 should specifically state the grounds mentioned in Section 271(1)(c). The tribunal concluded that the notices were nebulous and not valid in law, rendering the penalty proceedings void ab initio.

4. Application of Explanation 1 to Section 271(1)(c):
The assessee argued that the Assessing Officer (AO) did not specify whether Explanation 1(A) or Explanation 1(B) to Section 271(1)(c) was applicable. The tribunal observed that the AO's penalty order and the CIT(A)'s confirmation did not clearly establish which explanation was being applied. The tribunal held that the penalty could not be imposed merely by referring to Explanation 1 without specifying the applicable clause.

Conclusion:
The tribunal quashed the penalty notices and all proceedings based thereon, culminating in the impugned orders, due to the lack of specificity in the penalty notices. The appeal was allowed in favor of the assessee.

Order Pronouncement:
The order was pronounced in the open court on 18/05/2018.