2018 (8) TMI 1044 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - appellant has voluntarily offered additional income during the course of assessment proceeding - Held that - Notice issued by AO u/s.274 r.w.s. 271(1)(c) was on standard performa in which inappropriate words and paragraphs were neither struck off nor deleted. - No satisfaction was recorded in the quantum order as to whether AO intends to initiate penalty proceedings for furnishing of inaccurate particulars of income or concealment of income. Thus, the assessing authority was not sure as to whether he had proceeded on the basis that the assessee had either concealed its income or had furnished inaccurate particulars. It is only when the authority invested with the requisite power is satisfied that either of the two events existed in a particular case that proceedings u/s. 271(1)(c) of the Act are initiated. This pre-requisite should invariably be evident from the notice issued u/s. 274 r.w.s. 271 of the Act, which is the jurisdictional notice, for visiting an assessee with the penal provision. No justification in imposing penalty - Levy of penalty deleted - Decided in favor of assessee.

Summary

Issues Involved:
1. Legality of the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the notice issued under Section 274 of the Income Tax Act, 1961.

Detailed Analysis:

1. Legality of the Penalty Levied Under Section 271(1)(c) of the Income Tax Act, 1961:

The assessee filed its return of income declaring a total income of ?20,31,730/-. During the scrutiny, an addition of ?25,00,000/- was made by the Assessing Officer (AO) on account of bogus share capital, and a penalty of ?8,41,500/- was levied under Section 271(1)(c) of the Act. The assessee contended that the penalty was unjustified as the amount was voluntarily offered during the assessment proceedings. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's order, leading to the present appeal.

The Tribunal noted that during the assessment proceedings, the assessee agreed to the addition concerning the discrepancy pointed out by the AO. However, the penalty order issued by the AO was found to be flawed as it did not specify whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income." The Tribunal emphasized that these two charges operate on different footings and require clear and specific charges, not vague ones.

2. Validity of the Notice Issued Under Section 274 of the Income Tax Act, 1961:

The assessee argued that the notice issued under Section 274 was invalid as it did not specify the exact charge against the assessee. The Tribunal examined the notice dated 29/12/2008 and found that it was a standard pre-printed form where inappropriate words were not struck off, leading to ambiguity. The Tribunal observed that the AO did not record satisfaction in the quantum order regarding whether the penalty proceedings were initiated for concealment of income or furnishing inaccurate particulars of income, making the notice vague and indicative of non-application of mind by the AO.

The Tribunal relied on several judicial pronouncements, including the Hon'ble Karnataka High Court's judgment in the case of Manjunatha Cotton and Ginning Factory (359 ITR 565), which held that the notice under Section 274 must specifically state the grounds for penalty. The Tribunal also referred to the Hon'ble Bombay High Court's decision in the case of Samson Perinchery, which reiterated that a vague notice invalidates the penalty proceedings.

Conclusion:

The Tribunal concluded that the penalty levied under Section 271(1)(c) was not sustainable due to the vague and non-specific notice issued under Section 274. The Tribunal directed the AO to delete the penalty of ?8,41,500/-. Consequently, the assessee's appeal for A.Y. 2006-07 was allowed.

Order pronounced in the open court on 6th August, 2018.