2020 (11) TMI 414 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of FBT as made in its hands while framing the assessment - HELD THAT - Admittedly, the A.O is vested with the powers to levy penalty u/s 271(1)(c) if, in the course of the proceedings he is satisfied that the assessee had either concealed his income or furnished inaccurate particulars of his income . As penalty proceedings are in the nature of quasi criminal proceedings, therefore, the assessee as a matter of a statutory right is supposed to know the exact charge for which he is being called upon to explain that as to why the same may not be imposed on it. The non-specifying of the charge in the SCN notice not only reflects the non-application of mind by the A.O, but, in fact, defeats the very purpose of giving a reasonable opportunity of being heard to the assessee as envisaged under Sec. 274(1) - fine distinction between the said two defaults contemplated in Sec. 271(1)(c) viz. concealment of income and furnishing of inaccurate particulars of income had been appreciated at length in the case of Dilip Shroff 2007 (5) TMI 198 - SUPREME COURT and T. Ashok Pai 2007 (5) TMI 199 - SUPREME COURT . 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 furnishing of inaccurate particulars which led to concealment of income by the assessee in respect of the aforesaid solitary addition/disallowance made in the hands of the assessee. A.O in his SCN had failed to put the assessee to notice as regards the default for which it was called upon to explain as to why penalty u/s 271(1)(c) may not be imposed on it, in our considered view, would suffice to divest the A.O from valid assumption of jurisdiction for imposing penalty under the said statutory provision. 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 furnishing of inaccurate particulars which led to concealment of income by the assessee in respect of the solitary addition/disallowance 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, therefore, set aside the order of the CIT(A) who had upheld the same. The penalty u/s 271(1)(c) is quashed in terms of our aforesaid observations. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the penalty order under Sec. 271(1)(c) of the Income Tax Act.
2. Jurisdictional error in the penalty notice.
3. Merits of the penalty imposed for disallowance of Fringe Benefit Tax (FBT).

Detailed Analysis:

1. Validity of the Penalty Order:
The primary issue is whether the Commissioner of Income Tax (Appeals) erred in upholding the penalty order passed by the Assistant Commissioner of Income Tax under Sec. 271(1)(c) of the Income Tax Act, 1961. The assessee argued that no penalty should have been levied for the year under consideration and that the penalty notice was invalid due to a lack of a clear charge. Furthermore, the charge on which the penalty was levied differed from the charge on which it was initiated.

2. Jurisdictional Error in the Penalty Notice:
The assessee contended that the penalty notice was invalid because the Assessing Officer (A.O) failed to strike off the irrelevant default in the body of the Show Cause Notice (SCN). The A.O initiated the penalty for "furnishing of inaccurate particulars of income" but imposed it for "concealment of income." The tribunal observed that both defaults are separate and distinct, and the A.O could not have initiated the penalty for one default and imposed it for another. This discrepancy rendered the penalty order unsustainable in law.

The tribunal referenced the Hon’ble Supreme Court's judgments in Dilip & Shroff Vs. Jt. CIT and T. Ashok Pai Vs. CIT, which clarified that "concealment of income" and "furnishing of inaccurate particulars of income" have different connotations. The tribunal concluded that the A.O's failure to specify the exact charge in the SCN reflected non-application of mind and violated the principles of natural justice, thereby invalidating the penalty order.

3. Merits of the Penalty Imposed for Disallowance of Fringe Benefit Tax (FBT):
The assessee had inadvertently claimed a deduction of ?38,20,500/- on account of FBT, which was disallowed by the A.O under Sec. 40(a)(ic) of the Act. The A.O initiated penalty proceedings under Sec. 271(1)(c) for "furnishing of inaccurate particulars of income" and later imposed the penalty for "concealment of income." The tribunal noted that the A.O's failure to strike off the irrelevant default in the SCN and the discrepancy between the initiated and imposed charges invalidated the penalty proceedings.

The tribunal also observed that the assessee had accepted the disallowance during the assessment proceedings, indicating a bonafide mistake rather than an intentional act of concealment or furnishing inaccurate particulars. Consequently, the tribunal held that no penalty under Sec. 271(1)(c) could be validly imposed on the assessee for the inadvertent error.

Conclusion:
The tribunal allowed the appeal filed by the assessee, quashing the penalty of ?12 lac imposed by the A.O under Sec. 271(1)(c) of the Income Tax Act. The tribunal emphasized that the A.O's failure to specify the exact charge in the SCN and the discrepancy between the initiated and imposed charges rendered the penalty order invalid. The tribunal refrained from adjudicating the merits of the case, as the penalty had already been quashed on jurisdictional grounds.