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2020 (10) TMI 793 - AT - Income TaxPenalty u/s 271(1)(c) - Defective notice - Appellant was never communicated either of twin exact charge envisaged in section 271(1)(c) - undisclosed expenses - HELD THAT - Failure on the part of the A.O to clearly put the assessee to notice as regards the default for which penalty under Sec. 271(1)(c) was sought to be imposed on it in the SCN , dated 31.03.2016, had left the assessee guessing of the default for which it was being proceeded against. As the two defaults viz. concealment of income and furnishing of inaccurate particulars of income as contemplated in Sec.271(1)(c) are separate and distinct defaults which operate in their exclusive and independent fields, we, therefore, are unable to subscribe to the view taken by the CIT(A) that the A.O had validly imposed penalty for concealment of income and furnishing inaccurate particulars of income in respect of the solitary addition of ₹ 14.50 lacs made in the hands of the assessee. We thus in the backdrop of our aforesaid observations not being able to persuade ourselves to subscribe to the imposition of penalty by the A.O. - Decided in favour of assessee.
Issues Involved:
1. Validity of penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act, 1961. 2. Merits of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961. Issue-Wise Detailed Analysis: 1. Validity of Penalty Proceedings Initiated Under Section 271(1)(c): The primary issue raised by the assessee was the validity of the penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act, 1961. The assessee contended that the penalty notice issued by the Assessing Officer (A.O) was ambiguous and did not specify the exact charge for which the penalty was being imposed. The notice stated that the penalty was being initiated for "concealment and furnishing inaccurate particulars of income," which are distinct and separate defaults under the law. The assessee argued that the A.O's failure to strike out the inapplicable words in the standard penalty notice form and to clearly specify the charge violated the principles of natural justice. This ambiguity left the assessee uncertain about the specific default for which the penalty was being imposed, thereby hindering its ability to defend itself adequately. The Tribunal agreed with the assessee's contention, emphasizing that the two defaults, "concealment of income" and "furnishing inaccurate particulars of income," are separate and distinct. The A.O's failure to clearly specify the charge in the penalty notice reflected a lack of application of mind and rendered the notice invalid. The Tribunal relied on various judicial pronouncements, including the judgments of the Hon'ble Supreme Court in the cases of Dilip N. Shroff vs. Jt. CIT and T. Ashok Pai vs. CIT, which highlighted the importance of specifying the exact charge in penalty proceedings. The Tribunal also referred to the judgment of the Hon'ble High Court of Karnataka in the case of CIT vs. SSA's Emerald Meadows, where it was held that a penalty notice that does not specify the limb of Section 271(1)(c) for which the penalty proceedings are initiated is bad in law. The Hon'ble Supreme Court had dismissed the Special Leave Petition filed by the revenue against this judgment. Based on these observations, the Tribunal concluded that the A.O's failure to specify the exact charge in the penalty notice invalidated the penalty proceedings. Consequently, the penalty of ?4,48,350 imposed by the A.O under Section 271(1)(c) was quashed. 2. Merits of the Penalty Imposed Under Section 271(1)(c): As the Tribunal quashed the penalty on the grounds of invalidity of the penalty notice, it refrained from adjudicating the merits of the case. The assessee had also challenged the penalty on merits, arguing that the additional income of ?14,50,000 was offered to buy peace of mind and avoid protracted litigation. However, since the penalty was quashed on procedural grounds, the Tribunal did not delve into the merits of the case. Conclusion: The Tribunal allowed the appeal of the assessee, quashing the penalty of ?4,48,350 imposed under Section 271(1)(c) of the Income Tax Act, 1961, due to the invalidity of the penalty notice. The Tribunal emphasized the importance of clearly specifying the charge in penalty notices to ensure compliance with the principles of natural justice and the statutory requirements.
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