2019 (3) TMI 479 - AT - Income Tax

Penalty proceedings u/s. 271(1)(c) - defective notice - AO has mentioned both the limbs, viz., concealment of particulars of income and furnishing of inaccurate particulars of income in notice - HELD THAT - AO has initiated penalty proceedings for furnishing of inaccurate particulars of income. However, while imposing penalty, AO has held that the assessee has concealed particulars of income and also furnished inaccurate particulars of income. Even though the AO has mentioned both the limbs, viz., concealment of particulars of income and furnishing of inaccurate particulars of income, it is not clear as to which one has weighed his mind while imposing penalty. This indicates the non-application of mind on the part of the AO and the same would vitiate penalty proceedings in both the years. Accordingly, we set aside the orders passed by the Ld. CIT(A) in both the years under consideration and quash the penalty orders passed by the AO in both the years. - Decided in favour of assessee.

Summary

Issues:
Challenging penalty levied by AO for AYs 2011-12 & 2012-13 for furnishing inaccurate income particulars.

Analysis:
The Appellate Tribunal ITAT Mumbai heard appeals filed by the assessee against penalty orders confirmed by the Ld. Commissioner of Income Tax (Appeals)-4, Mumbai. The AO initiated penalty proceedings under section 271(1)(c) of the Income Tax Act for the AYs 2011-12 & 2012-13 due to the assessee's failure to furnish returns of income and disallowed expenses claimed without proper evidence. The penalty amounts were ?9,79,655/- for AY 2011-12 and ?8,93,525/- for AY 2012-13. The AO observed that the assessee concealed income particulars and furnished inaccurate income particulars, leading to the penalty imposition.

The Ld. CIT(A) upheld the penalty, prompting the assessee to appeal. During the hearing, it was revealed that the AO had not clarified which limb of section 271(1)(c) the penalty was imposed under, causing a contradiction in the penalty order. The AO penalized for both "concealment of particulars of income" and "furnishing of inaccurate particulars of income," which raised concerns about the clarity of the penalty imposition process.

Citing a case from the Hon'ble Bombay High Court, the Tribunal highlighted that the AO must specify the exact limb of section 271(1)(c) contravened during penalty initiation. In this case, the AO's failure to clarify which limb influenced the penalty imposition indicated a lack of proper consideration, potentially vitiating the penalty proceedings. Consequently, the Tribunal set aside the Ld. CIT(A)'s orders and nullified the penalty orders for both years, emphasizing the legal issue's resolution without addressing the merits.

Ultimately, both appeals of the assessee were allowed, and the penalty orders were quashed due to the lack of clarity in the penalty imposition process. The Tribunal's decision was pronounced on 6th March 2019.