2020 (7) TMI 11 - AT - Income Tax

Rectification of mistake - Penalty u/s 271(1)(c) - as per notice assessee had faulted on both the charges i.e. having concealed particulars of income as well as furnished inaccurate particulars of such income - HELD THAT - According to us, sometimes in some cases, it may attract both the offences and in some cases there may be overlapping of the two charges, then in such event in the penalty proceedings also notice should clearly specify the same by adding the adjunctive and and not the disjunctive or . The omission of the AO to strike of or between the two charges and write/add and in between both the charges makes the notice vague. So, even if the AO is of the opinion that action/omission of assessee attracts both the charges, then it was incumbent upon him, to put the assessee on notice by expressing his intention to proceed against the assessee for both charges by striking out or and substituting it with and which AO has failed to do in this case. AO by not bothering even to do the exercise as suggested by us reveals the mechanical approach of issuing penalty notice which action exposes the non-application of the mind on the part of the AO to put the assessee on clear notice for which he intends to levy penalty. Moreover, it has to be kept in mind that the assessment proceeding is distinct from the penalty proceedings and it is a settled law that imposition of penalty is discretionary and not mandatory. Any observation or finding made in the assessment order cannot come to the rescue of the AO s action of issuing defective/vague penalty notice. So, in the facts and circumstances discussed supra, the Misc. Application filed by the Revenue fails since we find no error leave alone error apparent on the face of the impugned order of the Tribunal.

Summary

Issues:
1. Appeal against the cancellation of penalty under section 271(1)(c) of the Income-tax Act, 1961 due to an invalid notice specifying charges.
2. Interpretation of penalty charges for concealing particulars of income or furnishing inaccurate particulars of income.
3. Requirement of clarity in penalty notice specifying charges as 'and' instead of 'or'.
4. Distinction between assessment proceedings and penalty proceedings.

Issue 1:
The appeal was filed against the cancellation of penalty under section 271(1)(c) of the Income-tax Act, 1961 due to an invalid notice that did not specify the charges clearly. The Tribunal had allowed the appeal of the assessee based on the invalid notice, citing the decision of the Hon’ble Karnataka High Court in previous cases. The Tribunal emphasized the importance of a valid notice specifying charges for penalty imposition.

Issue 2:
The main contention was whether the AO had found the assessee at fault for both charges of concealing particulars of income and furnishing inaccurate particulars of income. The revenue argued that since both charges were found in the assessment order, the penalty should apply to both charges. However, the assessee's representative pointed out that the notice used 'or' instead of 'and' between the charges, following the guidance from the Hon’ble Karnataka High Court decision. The Tribunal highlighted the necessity of clearly stating the grounds for penalty in the notice to provide the assessee with an opportunity to respond adequately.

Issue 3:
The Tribunal stressed the importance of using 'and' instead of 'or' in the penalty notice when both charges apply or overlap. It was noted that the omission of the AO to specify 'and' between the charges made the notice vague. The Tribunal emphasized that the imposition of penalty is discretionary, and the assessment proceedings should not influence the penalty proceedings. The AO's failure to clarify the charges in the notice indicated a lack of application of mind and a mechanical approach.

Issue 4:
The Tribunal concluded that the revenue's Misc. Application failed as there was no error in the Tribunal's order. It emphasized that the AO's failure to issue a clear notice specifying charges was a crucial factor in dismissing the revenue's appeal. The distinction between assessment and penalty proceedings was reiterated, highlighting the discretionary nature of penalty imposition.

In conclusion, the Tribunal dismissed the revenue's Misc. Application, emphasizing the need for a clear and specific penalty notice specifying charges as 'and' instead of 'or' to ensure fairness and compliance with legal principles.