2020 (8) TMI 445 - HC - Income Tax

Levy of penalty u/s 271(1)(c) - Defective notice - Addition of capital capital - concealment of particulars of his income and furnishing inaccurate particulars of such income - HELD THAT - Two limbs of Section 271(1)(c) of the Act and also the fact that the two limbs i.e. concealment of particulars of income and furnishing inaccurate particulars of income carry different connotations. We have also noticed that the Assessing Officer has to indicate in the statutory notice for which of the two limbs he proposes to impose the penalty and for this the notice has to be appropriately marked. If in the printed format of the notice the inapplicable portion is not struck off thus not indicating for which limb the penalty is proposed to be imposed, it would lead to an inference as to nonapplication of mind, thus vitiating imposition of penalty. The word particulars used in Section 271(1)(c) of the Act would embrace the meaning of the details of the claim made. Referring to Webster s Dictionary where the word inaccurate has been defined as not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript , Supreme Court held that the two words i.e., inaccurate and particulars read in conjunction must mean that the details supplied in the return are not accurate, not exact or correct, not according to truth or erroneous. It was held that mere making of a claim which is not sustainable in law by itself would not amount to furnishing inaccurate particulars regarding the income of the assessee. In the present case, concealment of particulars of income was not the charge against the appellant, the charge being furnishing of inaccurate particulars of income. As discussed above, it is trite that penalty cannot be imposed for alleged breach of one limb of Section 271(1)(c) of the Act while penalty proceedings were initiated for breach of the other limb of Section 271(1)(c). This has certainly vitiated the order of penalty. Assessee had declared the full facts and the sale agreement at the first instance; the full factual matrix or facts were before the AO while passing the asessment order. It is clear from the facts that the appellant had never suppressed any material fact from the respondent. Hence we are inclined to accept the submissions of the appellant. It is another matter that the claim based on such facts was found to be inadmissible. This is not the same thing as furnishing inaccurate particulars of income as contemplated under Section 271(1) (c) - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.
2. Whether the appellant furnished inaccurate particulars of income or concealed income.
3. Validity of the notice issued under Section 274 of the Income Tax Act, 1961.
4. Jurisdictional defect due to blank portions in the statutory notice.

Detailed Analysis:

1. Legality of the Penalty Imposed under Section 271(1)(c) of the Income Tax Act, 1961:
The appellant challenged the imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961, arguing that there was no concealment of income or furnishing of inaccurate particulars. The appellant contended that the entire transaction was disclosed and the income was offered to tax on a receipt basis. The court noted that the penalty under Section 271(1)(c) requires clear indication whether it is for concealment of income or furnishing inaccurate particulars, which was not appropriately marked in the notice.

2. Whether the Appellant Furnished Inaccurate Particulars of Income or Concealed Income:
The court examined whether the appellant had furnished inaccurate particulars of income. The appellant had disclosed the agreement for sale and the manner in which the capital gains were offered to tax. The court observed that the appellant had made a full disclosure of the facts and the sale agreement at the first instance, and there was no suppression of material facts. The court concluded that the appellant's claim, though found inadmissible, did not amount to furnishing inaccurate particulars of income.

3. Validity of the Notice Issued under Section 274 of the Income Tax Act, 1961:
The court scrutinized the statutory notice issued under Section 274 of the Act, which was required to specify whether the penalty was for concealment of income or furnishing inaccurate particulars. The court found that the notice was in printed form and the inapplicable portion was not struck off, reflecting a mechanical approach and non-application of mind by the Assessing Officer. This defect led to a jurisdictional defect, vitiating the imposition of penalty.

4. Jurisdictional Defect Due to Blank Portions in the Statutory Notice:
The court emphasized that the blank portions in the statutory notice under Section 274 indicated non-application of mind, leading to a jurisdictional defect. The court referred to precedents where similar defects in notices were held to vitiate penalty proceedings. The court held that the initiation of penalty for one offence and levy for another was not permissible, further compounding the defect.

Conclusion:
The court concluded that the penalty imposed under Section 271(1)(c) was not sustainable due to the jurisdictional defect in the notice and the lack of clear indication of the charge against the appellant. The court allowed the appeal, setting aside the penalty order and the orders of the lower appellate authorities, with no order as to costs.