2019 (3) TMI 1000 - AT - Income Tax

Penalty levied u/s. 271(1)(c) - non specification of charge - AO did not strike off and specify the charge/limb for which he is proposing to initiate the penalty proceedings - defective notice - HELD THAT - An identical situation has been considered by the Coordinate Bench in Meherjee Cassinath Holdings v. ACIT 2017 (5) TMI 904 - ITAT MUMBAI as to whether the action of the AO in initiating penalty proceedings U/s. 271(1)(c) without striking off one of the limbs and without specifying the specific charge in the notice initiating penalty proceedings for inaccurate particulars of income in the Assessment Order and in the case of CIT v. Samson Perinchery 2017 (1) TMI 1292 - BOMBAY HIGH COURT and also various decisions held that action of the Assessing Officer in non-striking off relevant clause in the notice shows that the charge being made against the assessee is not firm therefore proceedings suffer from non-compliance with principles of natural justice in as much as the Assessing Officer himself is not sure of the charge and the assessee is not made aware as to which of the two limbs of section 271(1)(c) he has to respond. We hold that the notice issued by the AO U/s. 274 r.w.s 271(1)(c) of the Act is on account of non-application of mind and therefore the penalty proceedings initiated are bad in law. Thus, we direct the Assessing Officer to delete the penalty levied U/s. 271(1)(c) of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act.
2. Specificity and clarity in the notice issued under Section 274 r.w.s 271(1)(c) of the Act.
3. Non-application of mind by the Assessing Officer in initiating penalty proceedings.
4. Legal precedents and their applicability to the present case.

Detailed Analysis:

1. Validity of Penalty Proceedings:
The primary issue in this appeal is the validity of the penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act. The assessee contended that the initiation of penalty proceedings was bad in law because the Assessing Officer (AO) did not specify the exact charge, i.e., whether the penalty was for concealment of income or for furnishing inaccurate particulars. The Tribunal noted that the AO mentioned concealment of income in the assessment order but cited both concealment and furnishing inaccurate particulars in the penalty order. This ambiguity rendered the penalty proceedings invalid.

2. Specificity and Clarity in Notice:
The Tribunal emphasized the importance of specificity and clarity in the notice issued under Section 274 r.w.s 271(1)(c) of the Act. The AO failed to strike off the irrelevant limb in the notice, leading to confusion about the exact charge against the assessee. The Tribunal cited the case of Meherjee Cassinath Holdings v. ACIT, where it was held that non-striking off the relevant clause in the notice shows that the charge is not firm, violating the principles of natural justice. The assessee must be made aware of the specific charge to respond appropriately.

3. Non-application of Mind by the Assessing Officer:
The Tribunal found that the AO demonstrated non-application of mind in initiating the penalty proceedings. The AO's failure to specify the charge in the notice and the penalty order indicated a lack of clarity and certainty in the proceedings. The Tribunal referenced the case of CIT v. Samson Perinchery, where it was held that the AO must be clear about the charge for the penalty proceedings to be valid. The AO's ambiguity in this case led to the conclusion that the penalty proceedings were initiated without proper application of mind.

4. Legal Precedents and Applicability:
The Tribunal referred to several legal precedents to support its decision. In the case of Dilip N. Shroff v. JCIT, the Supreme Court held that the AO must be clear about the charge, and failure to strike off inappropriate words in the notice indicates non-application of mind. Similarly, the Bombay High Court in CIT v. Samson Perinchery ruled that penalty proceedings must be initiated with a clear charge. The Tribunal also cited the cases of Orbit Enterprises v. ITO and DCIT v. Shri Dhaval D. Shah, where similar issues were addressed, and the penalty proceedings were deemed invalid due to lack of specificity in the notice.

Conclusion:
The Tribunal concluded that the penalty proceedings initiated by the AO were invalid due to non-application of mind and lack of specificity in the notice issued under Section 274 r.w.s 271(1)(c) of the Act. The Tribunal directed the AO to delete the penalty levied under Section 271(1)(c) of the Act. Consequently, the appeal of the assessee was allowed, and the penalty was deleted. The Tribunal did not address other arguments raised by the assessee as they became academic after the primary issue was resolved. The order was pronounced in the open court on 20th February 2019.