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2019 (3) TMI 798 - AT - Income TaxLevy of penalty u/s 271(1)(c) - penalty levied by AO on both the limbs (i.e. furnishing inaccurate particulars as well as concealment of income) - defective notice - non specification of charge - Disallowance u/s 69C being difference in cost of production as reflected in the Profit & Loss Account and as reflected in Schedule-8 of the accounts - HELD THAT - The perusal of quantum order reveal that penalty has been initiated by AO by making observations - Penalty proceedings u/s 271(1)(c) is being initiated separately. Pursuant to the same, the assessee was issued notice u/s 274 r.w.s. 271 on 27/03/2006, the perusal of which reveal that AO has failed to mark the appropriate limb i.e. concealed the particulars of your income or furnished inaccurate particulars of income for which the penalty was being initiated against the assessee. AO has failed to frame a specific charge against the assessee. The terms furnishing of inaccurate particulars of income and concealment of income, as per settled legal proposition, carry different connotations and therefore, failure to specify the same violate the right of the assessee to defend the same. Our conclusion is duly supported by the cited decision of this Tribunal rendered in Mrs. Indrani Sunil Pillai Vs ACIT 2018 (1) TMI 1226 - ITAT MUMBAI wherein in identical situation, the matter, after due deliberations, was decided in assessee s favour
Issues Involved:
1. Validity of penalty proceedings under section 271(1)(c) of the Income Tax Act. 2. Specificity and clarity in the penalty notice issued under section 274 read with section 271. 3. Proper satisfaction recorded by the Assessing Officer during the assessment proceedings. Issue-wise Detailed Analysis: 1. Validity of Penalty Proceedings under Section 271(1)(c): The assessee contested the levy of penalty amounting to ?11.85 Lacs imposed by the Assessing Officer (AO) and confirmed by the Commissioner of Income-Tax (Appeals) [CIT(A)]. The penalty was based on a quantum disallowance of ?32.26 Lacs under section 69C, which had already attained finality. The assessee argued that the penalty proceedings were vitiated due to the lack of proper satisfaction as required by law. The Tribunal noted that the AO failed to frame a specific charge against the assessee, as the terms "furnishing of inaccurate particulars of income" and "concealment of income" carry different connotations. This failure violated the assessee's right to defend themselves, rendering the penalty proceedings invalid. 2. Specificity and Clarity in Penalty Notice: The penalty notice issued under section 274 read with section 271 did not specify whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income." The Tribunal emphasized that the AO must clearly mark the appropriate limb in the notice. The lack of specificity in the notice deprived the assessee of a fair and reasonable opportunity to effectively deal with the issue of imposition of penalty. This principle was supported by the Tribunal's decision in Mrs. Indrani Sunil Pillai Vs ACIT and the Hon’ble Karnataka High Court's judgment in CIT v/s Manjunatha Cotton and Ginning Factory. 3. Proper Satisfaction Recorded by the Assessing Officer: The Tribunal observed that the AO did not record any satisfaction regarding whether the penalty proceedings were initiated for "furnishing inaccurate particulars of income" or "concealment of income." The AO merely stated, "Penalty proceedings u/s 271(1)(c) is being initiated separately," which was deemed insufficient. The Tribunal cited various judicial pronouncements, including the Hon’ble Supreme Court's decision in CIT v/s Reliance Petroproducts Pvt. Ltd., to assert that the AO must record clear satisfaction regarding the exact nature of the offence committed by the assessee. The failure to do so invalidated the penalty proceedings. Conclusion: The Tribunal concluded that the impugned penalty could not be sustained on legal grounds due to the lack of proper satisfaction and specificity in the penalty notice. Consequently, the appeal was allowed, and the penalty imposed was deleted. The adjudication of grounds on merit was deemed academic and not delved upon. Order Pronouncement: The order was pronounced in the open court on 08th March, 2019.
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