2020 (2) TMI 115 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice - make out the case of concealment of income or furnishing inaccurate particular of income - disallowance of credit card expenses claimed by the assessee as well as on account of failure of the assessee to explain the source of acquisition of the jewellery - 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 Emerald Meadows 2016 (8) TMI 1145 - SC ORDER and Pr. CIT vs. Sahara India Life Insurance Company Ltd. 2019 (8) TMI 409 - DELHI HIGH COURT we are of the considered view that when the notices issued by the AO are 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. AO has failed to apply his mind at the time of recording satisfaction at the time of framing assessment to initiate the penalty proceedings u/s 271(1)(c) of the Act as to under which limb of section 271(1)(c) i.e. for concealing particulars of income or furnishing inaccurate particulars of such income penalty proceedings have been initiated rather written vague and ambiguous satisfaction by recording that, penalty proceedings u/s 271(1)(c) are initiated . So, very initiating penalty proceedings on the basis of vague and ambiguous satisfaction rather no satisfaction are bad in law and as such not sustainable. Not only this even at the time of initiating the penalty proceedings the Assessing Officer was not aware enough as to whether he is initiating the penalty proceedings for concealment of particulars of income or for furnishing inaccurate particulars of income rather sought to initiate the penalty against the assessee We are of the considered view that when at the time of initiating penalty proceedings Assessing Officer was not aware as to under which of the limb of Section 271(1)(c) he is intiating the penalty proceedings subsequent proceedings u/s 271(1)(c) are futile exercise making levy of penalty is not sustainable in the eye of law - Decided in favour of assessee.

Summary

Issues Involved:
1. Sustaining of penalty imposed under Section 271(1)(c) of the Income Tax Act.
2. Alleged double taxation.
3. Non-adjudication of certain grounds by CIT(A).
4. Validity of the penalty order due to non-specific show cause notice.
5. Right to amend grounds of appeal.

Detailed Analysis:

1. Sustaining of Penalty Imposed Under Section 271(1)(c):
The appellant challenged the penalties of ?57,098 and ?2,03,388 for the assessment years 2009-10 and 2010-11, respectively. These penalties were imposed by the Assessing Officer (AO) under Section 271(1)(c) for disallowance of credit card expenses and unexplained jewelry. The CIT(A) confirmed these penalties, leading the assessee to appeal to the Tribunal.

2. Alleged Double Taxation:
The appellant contended that the CIT(A) erred in not appreciating that there was no double taxation involved in the case. However, the judgment does not provide a detailed discussion on this issue, suggesting that it was not a significant factor in the final decision.

3. Non-Adjudication of Certain Grounds by CIT(A):
The appellant argued that the CIT(A) did not adjudicate Ground Nos. 2 and 3 raised before him. The Tribunal did not focus on this procedural aspect, indicating that the main issue was the validity of the penalty itself.

4. Validity of the Penalty Order Due to Non-Specific Show Cause Notice:
The Tribunal scrutinized the show cause notices issued under Section 274 read with Section 271(1)(c). It was found that the AO issued vague and ambiguous notices without specifying whether the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." This lack of specificity rendered the notices invalid.

The Tribunal relied on precedents such as CIT vs. Manjunatha Cotton and Ginning Factory, CIT vs. SSA’s Emerald Meadows, and Pr. CIT vs. Sahara India Life Insurance Company Ltd., which held that non-specific notices violate principles of natural justice and are thus invalid.

5. Right to Amend Grounds of Appeal:
The appellant reserved the right to add, alter, amend, or delete any ground of appeal before the hearing date. However, this procedural right did not impact the Tribunal's decision.

Conclusion:
The Tribunal concluded that the AO failed to specify the exact charge under Section 271(1)(c) in the show cause notices, making the penalty proceedings invalid. Consequently, the penalties imposed for the assessment years 2009-10 and 2010-11 were deleted, and the appeals were allowed. The judgment emphasized the necessity for clear and specific charges in penalty notices to uphold the principles of natural justice.