2019 (12) TMI 445 - AT - Income Tax

Penalty u/s 271(1)(c) - non-striking off of the irrelevant clause in the notice - addition u/s 68 being sum of money introduced in foreign bank account in HSBC Bank, Geneva - HELD THAT - Hon'ble Supreme Court in the case of Dilip N. Shroff 2007 (5) TMI 198 - SUPREME COURT the quasi-criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice, and in the present case, considering the observations of the Assessing Officer in the assessment order alongside his action of non-striking off of the irrelevant clause in the notice shows that the charge being made against the assessee qua Sec. 271(1)(c) of the Act is not firm and, therefore, the proceedings suffer from non-compliance with principles of natural justice inasmuch as the Assessing Officer is himself unsure and assessee is not made aware as to which of the two limbs of Sec. 271(1)(c) of the Act he has to respond. Therefore, in view of the aforesaid discussion, in our view, the notice issued by the Assessing Officer u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 is untenable as it suffers from the vice of non-application of mind - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act.
2. Validity of the penalty notice due to non-specification of the charge.
3. Application of legal precedents regarding penalty imposition.

Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c) of the Income Tax Act:
The assessee appealed against the order confirming the penalty levied by the Assessing Officer (AO) under Section 271(1)(c) for the Assessment Years (A.Ys) 1997-98 to 2001-02. The penalty was imposed due to the addition under Section 68 of the Income Tax Act, which pertains to unexplained cash credits. Specifically, the penalty of ?1,06,746 was confirmed in respect of the addition of ?3,55,812, representing a sum of money introduced in a foreign bank account in HSBC Bank, Geneva.

2. Validity of the Penalty Notice Due to Non-Specification of the Charge:
The primary contention raised by the assessee was that the penalty notice did not specify the particular limb of Section 271(1)(c) under which the penalty was being levied, i.e., whether it was for concealment of income or for furnishing inaccurate particulars of income. This lack of specificity was argued to render the penalty notice invalid. The assessee relied on the legal precedent set by the Bombay High Court in the case of CIT-11 Vs. Samson Perinchery and the ITAT Mumbai Bench in Meherjee Cassinath Holdings P. Ltd. Vs. ACIT, Circle-4(2).

3. Application of Legal Precedents Regarding Penalty Imposition:
The Tribunal examined the arguments and the relevant legal precedents. It was noted that the penalty under Section 271(1)(c) could be levied for either of two distinct situations: concealment of income or furnishing inaccurate particulars of income, each having different connotations. The Supreme Court in Dilip N. Shroff (161 taxman 218) and T. Ashok Pai (292 ITR 11) had emphasized the necessity for the assessee to be aware of the specific charge to defend against it adequately.

The Tribunal found that the penalty notice issued to the assessee was in a standard proforma without striking out the irrelevant clause, thereby failing to specify the charge. This non-striking-off of the irrelevant clause indicated non-application of mind by the AO, as held by the Supreme Court in Dilip N. Shroff. The Tribunal also considered similar findings in the case of M/s. SSA’s Emerald Meadows, where the Special Leave Petition by the Revenue was dismissed by the Supreme Court.

The Tribunal further noted that the AO's assessment order mentioned the initiation of penalty proceedings for furnishing inaccurate particulars of income, but the notice included both limbs without specifying which one applied. This ambiguity was seen as a violation of the principles of natural justice, as the assessee was not clearly informed of the charge against them.

Conclusion:
Given the defective nature of the penalty notice, the Tribunal concluded that the penalty was not leviable in accordance with the law. The finding of the CIT(A) was deemed incorrect and unsustainable. Consequently, the Tribunal set aside the CIT(A)'s order and deleted the penalty for all the appeals filed by the assessee.

Separate Judgments:
The facts and issues in ITA Nos. 4464 to 4466/M/2018 were similar to those in ITA No. 4463/M/2018, and the Tribunal applied the same reasoning to delete the penalties in these cases as well.

Final Order:
The appeals filed by the assessee were allowed, and the penalties were deleted. The order was pronounced in the open court on 27/11/2019.