2021 (2) TMI 100 - AT - Income Tax

Levy of penalty under section 271(1)(c) - Defective notice - Non specification of charge - additions on account of short term and long term capital gains - HELD THAT - AO making the additions on account of short term / long term capital gains initiated the penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income and concealing the facts. A.O, however, levied the penalty under section 271(1)(c) for concealing the particulars of income. A.O. in the show cause notice issued for levy of penalty has mentioned Have concealed the particulars of your income or furnished inaccurate particulars of such income in terms of Explanation 1, 2, 3, 4 and 5. It would, therefore, show that notice issued before levy of the penalty is bad in Law and it did not specify under which limb of Section 271(1)(c) of the Act, penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing inaccurate particulars of income. The Hon ble Delhi High Court in its recent decision in the case of Pr. CIT vs. M/s. Sahara India Life Insurance Company Ltd. 2019 (8) TMI 409 - DELHI HIGH COURT observed that the notice issued by the AO would be bad in law if it did not specify which limb of Section 271(1) (c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. Case followed M/S MANJUNATHA COTTON AND GINNING FACTORY OTHS., M/S. V.S. LAD SONS, 2013 (7) TMI 620 - KARNATAKA HIGH COURT - Decided in favour of assessee.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the I.T. Act, 1961 based on inaccurate particulars of income and concealment of income.

Analysis:
The appeal was filed against the Order of the Ld. CIT(A)-36, New Delhi, challenging the penalty under section 271(1)(c) of the I.T. Act, 1961 for the A.Y. 2006-2007. The A.O. completed the assessment making additions for short term and long term capital gains and initiated penalty proceedings. The Assessee argued that the show cause notice did not specify the basis for initiating penalty proceedings, whether for concealment of income or furnishing inaccurate particulars, rendering the penalty illegal. The A.O. had mentioned both possibilities in the notice without specifying the exact basis for the penalty.

The Tribunal noted that the A.O. initiated penalty proceedings for both furnishing inaccurate particulars of income and concealing facts but levied the penalty only for concealing income. Citing legal precedents, the Tribunal emphasized the importance of specifying the exact basis for penalty proceedings. Referring to the case of CIT vs. M/s. SSA's Emérald Meadows, the Tribunal highlighted that a notice not specifying the limb of Section 271(1)(c) under which penalty proceedings are initiated renders the penalty proceedings illegal. The Tribunal also referenced a Delhi High Court decision affirming this principle.

Based on the above discussion, the Tribunal concluded that the penalty was invalid due to the defective notice issued by the A.O. before the levy of the penalty. As the notice did not specify the exact basis for the penalty, the entire penalty proceedings were vitiated. Consequently, the Tribunal set aside the Orders of the authorities below and canceled the penalty, allowing the appeal of the assessee.

In conclusion, the Tribunal held that the levy of the penalty was illegal due to the defective notice issued by the A.O. before specifying the exact basis for the penalty proceedings. As a result, the penalty was canceled, and the appeal of the assessee was allowed.