2019 (6) TMI 433 - AT - Income Tax

Penalty u/s 271(1)(c) - non specification of exact charge viz. concealing the particulars of income or furnishing of inaccurate particulars of income - defective notice - Addition of contingent liability and assessee could not adduce any evidence to demonstrate that the debts became bad during the year - assessee has revised its computation of income during assessment proceedings on the basis of audited financial statements which has resulted into certain additions in the hands of the assessee - HELD THAT -Explanation 1 is a deeming provision and is applicable only when an amount is added or disallowed in computation of total income which is deemed to represent the income in respect of which particulars have been concealed. Explanation 1 cannot be applied in a case where the assessee furnishes inaccurate particulars of income. Therefore the action of AO in invoking the same for furnishing of inaccurate particulars of income would not stand the test of law. The facts of the present case would reveal that the penalty was initiated on the basis that the assessee has furnished inaccurate particulars of income whereas the penalty has finally been levied in terms of Explanation-1 on account of concealment of income. Keeping in view the above findings and reasoning we hold that the impugned penalty could not be sustained under law since AO has failed to specify that the exact charge in the show-cause notice and secondly the penalty has been invoked for one limb but finally levied on another limb which is not in accordance with law. The perusal of show-cause notice dated 26/02/2015 as placed on record reveal that neither the appropriate clause was marked nor appropriate lime was ticked for which penalty proceedings were being initiated against the assessee. The assessee in his submissions drew attention to the aforesaid fact and stressed that the notice was bad in law. See SHRI SAMSON PERINCHERY 2017 (1) TMI 1292 - BOMBAY HIGH COURT - Decided in favour of assessee.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Legality of penalty proceedings under Section 271(1)(c) for Assessment Year 2012-13.
3. Validity of the show-cause notice under Section 274 read with Section 271(1)(c).
4. Justification for imposition of penalty for furnishing inaccurate particulars of income.
5. Application of judicial precedents and principles of natural justice.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal was delayed by 17 days due to the disqualification of all directors of the assessee company under the Companies Act, 2013, effective from 29/10/2016. New directors were appointed on 05/06/2017, leading to the delay. The Tribunal condoned the delay, citing the principle of natural justice and the Supreme Court decision in Collector, Land Acquisition Vs. Katiji, emphasizing that the delay should be condoned to ensure justice.

2. Legality of Penalty Proceedings under Section 271(1)(c):
The assessee was assessed under Section 143(3) for AY 2012-13, resulting in additions for Provision for Annual Leave & PF Contribution (Rs. 24,62,586) and Provision for Doubtful Debts (Rs. 52,12,993). These additions led to penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income. The assessee accepted the additions without further appeal.

3. Validity of the Show-Cause Notice under Section 274 read with Section 271(1)(c):
During penalty proceedings, the show-cause notice issued on 26/02/2015 did not specify the exact charge (concealment of income or furnishing inaccurate particulars), making it legally unsustainable. The Tribunal emphasized that every accused has the right to know the specific ground for adverse proceedings, and failure to specify the charge violates principles of natural justice.

4. Justification for Imposition of Penalty for Furnishing Inaccurate Particulars of Income:
The Tribunal noted that the penalty was initiated for furnishing inaccurate particulars but imposed for concealment of income under Explanation 1 to Section 271(1)(c). The Tribunal held that furnishing inaccurate particulars and concealment of income are distinct charges, and penalty proceedings must specify the exact charge. The penalty imposed for one charge but initiated for another is legally unsustainable.

5. Application of Judicial Precedents and Principles of Natural Justice:
The Tribunal relied on several judicial precedents, including CIT Vs. Manjunatha Cotton & Ginning Factory and CIT Vs. Samson Perinchery, which held that non-specification of the exact charge in penalty notices invalidates the proceedings. The Tribunal also referred to the Supreme Court decision in T. Ashok Pai Vs. CIT, which distinguished between concealment of income and furnishing inaccurate particulars. The Tribunal concluded that the penalty proceedings were invalid due to the lack of specific charges and the incorrect application of Explanation 1.

Conclusion:
The Tribunal deleted the impugned penalty on legal grounds, emphasizing that the Assessing Officer failed to specify the exact charge in the show-cause notice and imposed the penalty for a different charge. The appeal was partly allowed, and the penalty was deleted, making the examination of the penalty on merits unnecessary. The order was pronounced in the open court on 06th June 2019.

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