2019 (1) TMI 595 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - addition has been made by estimating G.P and working out stock at a given date assuming that G.P% remains same throughout the year - defective notice - Held that - It is an established position of law that the A.O at the time of issuing notice u/s 274 r.w.s. 271(1)(c) has to give positive and clear cut finding in the body of the show cause notice itself reflecting the charges against the assessee as to whether penalty proceeding are initiated for concealment of particulars of income or for furnishing inaccurate particulars of income. We find that in the body of the notice issued u/s 274 r.w.s. 271(1)(c) of the Act the Ld.A.O failed to mention the limbs for which penalty proceedings have been initiated. It is the negligence of the Ld. A.O in not making proper specific charge in the notice u/s 274 about the addition for which penalty proceedings have been initiated. Ld. A.O should be clear as to whether the alleged addition goes under the limb of concealment of particulars of income or furnishing inaccurate particulars of income . Notice issued u/s 271(1)(c) dated 19.5.2014 is invalid, untenable and suffers from the infirmity of non application of mind by the Assessing Officer. - Decided in favour of assessee.

Summary

Issues:
Confirmation of penalty under section 271(1)(c) of the Income Tax Act for Assessment Year 2007-08.

Analysis:

1. Confirmation of Penalty:
The appeal challenges the confirmation of a penalty of ?5,00,000 under section 271(1)(c) of the Income Tax Act. The assessee, engaged in wholesale and retail trading, declared an income of ?5,27,681 for the relevant assessment year. Following a survey, excess stock and cash were discovered, leading to the surrender of amounts and payment of advance taxes. The assessing officer (AO) assessed the income at ?24,78,068, adding various components. Subsequently, a penalty of ?5,00,000 was imposed for furnishing inaccurate or concealed particulars of income. The assessee contended that the penalty was unjustified, citing explanations supported by documentary evidence and challenging the estimation methods used for additions. The appeal before the tribunal raised concerns regarding the initiation and imposition of the penalty.

2. Initiation of Penalty Proceedings:
The appellate tribunal considered the legality of the penalty proceedings initiated by the AO. It was observed that the notice issued did not specify the grounds for initiating the penalty under section 271(1)(c) clearly. Citing precedents, the tribunal emphasized that the notice must explicitly mention whether the penalty is for concealment of income or furnishing inaccurate particulars. Failure to provide specific charges in the notice was deemed a violation of natural justice principles. Relying on judicial decisions, the tribunal concluded that the notice issued was invalid and lacked proper application of mind by the AO. Consequently, the penalty of ?5,00,000 imposed under section 271(1)(c) was directed to be deleted on this ground.

3. Decision and Outcome:
The tribunal allowed the appeal, deleting the penalty of ?5,00,000 imposed under section 271(1)(c) due to the invalidity of the notice issued by the AO. The tribunal's decision was based on the requirement for clear and specific charges in penalty notices to ensure compliance with natural justice principles. As a result, the other arguments raised by the assessee regarding the merits of the penalty levy were not addressed, as they were deemed academic. The appeal challenging the penalty for Assessment Year 2007-08 was allowed by the tribunal.

This detailed analysis of the judgment highlights the key issues, arguments presented, legal principles applied, and the final decision rendered by the appellate tribunal regarding the confirmation of the penalty under section 271(1)(c) of the Income Tax Act for the specified assessment year.