2020 (1) TMI 160 - AT - Income Tax

Penalty u/s 271(1)(c) - vagueness in the notice u/s 274 - HELD THAT - Notice issued U/s 274 of the Act and consequent impugned penalty order dated 24/06/2019 is quite vague and does not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated and/or imposed i.e. whether for concealment of particulars of income or furnishing inaccurate particulars of income. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the penalty order under Section 271(1)(c) of the Income Tax Act, 1961.
2. Specificity and clarity of the show cause notice under Section 274 of the Act.
3. Determination of whether the penalty was for concealment of income or furnishing inaccurate particulars of income.

Issue-wise Detailed Analysis:

1. Validity of the penalty order under Section 271(1)(c) of the Income Tax Act, 1961:
The assessee contested the penalty imposed by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the penalty order was bad in law and on facts. The penalty of ?3,71,743/- was imposed under Section 271(1)(c) for allegedly concealing particulars of income or furnishing inaccurate particulars of income. The assessee argued that there was no variation between the returned income and the assessed income under Section 147 of the Act, implying no concealment or inaccuracy. The Tribunal found that the AO did not establish that the assessee failed to disclose the true and correct income after the issuance of notice under Section 148, thus questioning the validity of the penalty.

2. Specificity and clarity of the show cause notice under Section 274 of the Act:
The assessee challenged the validity of the penalty order on the grounds of vagueness in the show cause notice issued under Section 274. The Tribunal noted that the notice did not specify whether the penalty proceedings were initiated for concealment of income or for furnishing inaccurate particulars of income. The notice used the disjunctive "or" without striking off the inappropriate charge, leading to ambiguity. This failure to specify the precise charge was found to be contrary to the judicial principles laid down by various courts, including the Karnataka High Court in CIT vs. Manjunatha Cotton and Ginning Factory and the Gujarat High Court in New Sorathia Engineering Co. vs. CIT.

3. Determination of whether the penalty was for concealment of income or furnishing inaccurate particulars of income:
The Tribunal emphasized the necessity for the AO to clearly specify the limb under which the penalty was being imposed—whether for concealment of income or for furnishing inaccurate particulars. The Tribunal cited several judicial pronouncements, including the Supreme Court's decision in Dilip N. Shroff v/s JCIT and the Bombay High Court's decision in CIT v. Shri Samson Perinchery, which underscored that the jurisdictional notice must clearly inform the assessee of the specific charge. The Tribunal concluded that the penalty order was invalid due to the AO's failure to clearly specify the charge, thus depriving the assessee of a fair opportunity to respond.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the penalty order was invalid due to the vagueness and lack of specificity in the show cause notice under Section 274. The Tribunal emphasized the importance of clearly specifying the charge in the notice to ensure compliance with the principles of natural justice and judicial precedents. The order was pronounced in the open court on 03rd January, 2020.