2019 (10) TMI 1062 - AT - Income Tax

Levy of penalty imposed u/s 271(1)(c) - disallowance of deductions claimed by the assessee u/s 43B - HELD THAT - Following the decisions rendered in the cases of CIT vs. Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT . CIT vs. SSA s Emerala Meadows 2016 (8) TMI 1145 - SC ORDER and Pr. CIT vs. Sahara India Life Insurance Company Ltd. 2016 (8) TMI 1145 - SC ORDER , we are of the considered view that when the notice issued by the AO is bad in law being vague and ambiguous having not specified under which limb of section 271(1)(c) of the Act, the penalty proceedings initiated u/s 271(1)(c) are not sustainable. Even, on merits, it is not in dispute that the assessee has disclosed all the deductions claimed u/s 43B of the Act which leads to the conclusion that there is no concealment, no malafide or false representation as the case may be on the part of the assessee in claiming deductions u/s 43B of the Act and as such, the same cannot be amounted to concealment of particulars of income or furnishing of inaccurate particulars of such income. Merely because of the fact that the deductions claimed by the assessee have been disallowed the provisions contained u/s 271(1)(c) are not attracted. - Decided in favour of assessee

Summary

Issues Involved:
1. Whether the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961, was justified.
2. Whether the notice issued under section 274 read with section 271(1)(c) was valid.
3. Whether the assessee concealed particulars of income or furnished inaccurate particulars of income.

Detailed Analysis:

1. Justification of Penalty under Section 271(1)(c):
The primary issue revolves around the penalties imposed by the Assessing Officer (AO) under section 271(1)(c) for the assessment years 2007-08, 2008-09, and 2009-10. The penalties were based on the disallowance of deductions claimed by the assessee under section 43B of the Income-tax Act. The AO contended that the assessee concealed particulars of income and furnished inaccurate particulars of income. However, the Tribunal noted that the assessee had disclosed all deductions claimed under section 43B in the audited balance sheet, leading to the conclusion that there was no concealment or malafide intent. The Tribunal emphasized that merely disallowing a claim does not attract penalty under section 271(1)(c), referencing the Supreme Court's decision in Reliance Petro Products Pvt. Ltd. which stated that making an incorrect claim does not amount to furnishing inaccurate particulars.

2. Validity of Notice under Section 274 Read with Section 271(1)(c):
The Tribunal scrutinized the notice issued by the AO under section 274 read with section 271(1)(c) and found it to be vague and ambiguous. The notice failed to specify whether the penalty proceedings were initiated for "concealment of particulars of income" or "furnishing of inaccurate particulars of income." This ambiguity rendered the notice invalid as it did not provide the assessee with a clear understanding of the charges against them. The Tribunal relied on the Karnataka High Court's decision in CIT vs. Manjunatha Cotton and Ginning Factory, which held that a specific show-cause notice is essential for valid penalty proceedings. The Supreme Court's affirmation in CIT vs. SSA’s Emerala Meadows further supported this stance.

3. Concealment or Furnishing Inaccurate Particulars:
The Tribunal addressed whether the assessee actually concealed income or furnished inaccurate particulars. It was undisputed that the assessee had disclosed all deductions in the audited balance sheet. The Tribunal concluded that there was no concealment or furnishing of inaccurate particulars, as the deductions were transparently disclosed. The Tribunal reiterated that disallowance of a claim does not automatically imply concealment or inaccurate particulars, referencing the Supreme Court's interpretation in Reliance Petro Products Pvt. Ltd.

Conclusion:
The Tribunal found the penalties under section 271(1)(c) to be unjustified due to the invalid notice and lack of concealment or inaccurate particulars. The penalties were deleted, and the appeals were allowed. The judgment underscores the necessity of precise and clear notices for penalty proceedings and clarifies that disallowance of claims does not equate to concealment or furnishing inaccurate particulars.