2019 (12) TMI 310 - AT - Income Tax

Penalty u/s 271(c) - AO rejected the books of accounts showed by assessee and considering the nature of the assessee s business estimated the profit at 8% of the total receipts - HELD THAT - Penalty notice nowhere speaks about specific limb to levy the penalty because the particular charge was not tick off in the notice, therefore, in the said circumstances, the penalty is not justifiable hence the order of the CIT(A) confirming the penalty order of the AO is wrong against law and facts and is liable to be set aside. Penalty is not liable to be leviable in accordance with law. We further, found that in the present case, the penalty was levied on the basis of estimation of the profit after rejecting the books of accounts. The assessee was in the business of Civil Construction business and after rejecting his books of account, the income of the assessee was estimated @ 8% of the total turnover. No penalty is liable to be leviable specifically in the circumstances, when the income has been assessed on the basis of estimation basis in view of the decision of CIT vs. Metal Products of India 1984 (1) TMI 36 - PUNJAB AND HARYANA HIGH COURT and in the case of Harigopal Singh vs. CIT 2002 (8) TMI 65 - PUNJAB AND HARYANA HIGH COURT and in the case of CIT vs. Nawab and Bros. 1974 (5) TMI 7 - ALLAHABAD HIGH COURT . Taking into account, all the facts and circumstances, we are of the view that the penalty is not liable to be sustainable in the eyes of law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of Penalty under Section 271(1)(c) of the Income Tax Act.
2. Specificity of the Penalty Notice.
3. Penalty based on Estimated Income.

Detailed Analysis:

1. Validity of Penalty under Section 271(1)(c) of the Income Tax Act:
The core issue in this case is whether the penalty levied under Section 271(1)(c) of the Income Tax Act is valid. The assessee contended that the penalty notice did not specify the exact charge, i.e., whether it was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." The distinction between these two charges is critical as they denote different connotations, and the assessee must be aware of the specific charge to mount an appropriate defense. The judgment references the Supreme Court's decision in Dilip N. Shroff and the Bombay High Court's ruling in CIT-11 Vs. Samson Perinchery, which emphasize the necessity for clarity in the penalty notice.

2. Specificity of the Penalty Notice:
The Tribunal noted that the penalty notice issued by the Assessing Officer did not specify the particular limb under which the penalty was being levied. The notice was issued in a standard proforma without striking off the irrelevant part, which led to ambiguity. This non-specificity was deemed a reflection of non-application of mind by the Assessing Officer. The Tribunal cited various precedents, including the Supreme Court's decision in Dilip N. Shroff and the Karnataka High Court's ruling in M/s. SSA’s Emerald Meadows, to support the argument that such ambiguity invalidates the penalty notice. The Tribunal concluded that the notice's failure to specify the exact charge rendered it untenable.

3. Penalty based on Estimated Income:
The Tribunal also addressed the issue of penalty based on estimated income. The assessee's income was assessed on an estimated basis after rejecting the books of accounts. The Tribunal referenced several judicial precedents, including CIT vs. Metal Products of India, Harigopal Singh vs. CIT, and CIT vs. Nawab and Bros., which held that penalty is not leviable when income is assessed on an estimated basis. The Tribunal found that in the present case, the penalty was levied based on an estimation of profit after rejecting the assessee's books of accounts. Consequently, the Tribunal concluded that no penalty should be levied in such circumstances.

Conclusion:
The Tribunal held that the penalty notice issued under Section 271(1)(c) was invalid due to its failure to specify the exact charge. Furthermore, the penalty based on estimated income was not sustainable in law. Consequently, the Tribunal deleted the penalty and allowed the appeal filed by the assessee. The order was pronounced in the open court on 27/11/2019.