2021 (3) TMI 354 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice - furnishing inaccurate particulars of income by not offering the receipts as fee for technical services by filing the return of income - HELD THAT - Bare perusal of the notice issued u/s 274 read with section 271(1)(c) of the Act, extracted above, in order to initiate the penalty proceedings against the assessee goes to prove that the AO himself was not aware / sure as to whether he is issuing notice to initiate the penalty proceedings either for concealment of particulars of income or furnishing of inaccurate particulars of such income by the assessee rather issued vague and ambiguous notice by incorporating both the limbs of section 271(1)(c). When the charge is to be framed against any person so as to move the penal provisions against him/her, he/she is required to be specifically made aware of the charges to be leveled against him/her. Following the decisions rendered in the cases of CIT vs. SSA s Emerald Meadows 2016 (8) TMI 1145 - SC ORDER and Pr. CIT vs. Sahara India Life Insurance Company Ltd. 2019 (8) TMI 409 - DELHI HIGH COURT we are of the considered view that when the notice issued by the AO is bad in law being vague and ambiguous having not specified under which limb of section 271(1)(c) of the Act the same has been issued, the penalty proceedings initiated u/s 271(1)(c) are not sustainable. Initiating penalty on the basis of invalid satisfaction and on the basis of vague and ambiguous notice issued u/s 271(1)(c) read with section 274 is not sustainable in the eyes of law, hence liable to be deleted. Accordingly, question framed is answered in the negative and penalty levied by the AO and sustained by the ld.CIT (A) is ordered to be deleted

Summary

Issues Involved:
1. Violation of principles of natural justice and jurisdiction.
2. Imposition of penalty under section 271(1)(c) for voluntarily disclosed interest income.
3. Ambiguity in the notice regarding the grounds for penalty under section 271(1)(c).
4. Lack of explicit satisfaction recorded in the assessment order for penalty imposition.
5. Voluntary disclosure of interest income and lack of intent to conceal.
6. Acceptance of voluntary disallowance by the appellant and failure to demonstrate concealment.
7. Non-appeal of the said amount not amounting to concealment.
8. Time-barred penalty order under section 275(1)(c).

Detailed Analysis:

1. Violation of Principles of Natural Justice and Jurisdiction:
The appellant contended that the assessment order was finalized against the principles of natural justice, devoid of merits, and without proper jurisdiction. The appellant argued that the assessment was conducted without appreciating the facts and documents submitted, and without adequate inquiries.

2. Imposition of Penalty under Section 271(1)(c) for Voluntarily Disclosed Interest Income:
The appellant argued that the penalty under section 271(1)(c) was unjustified as the interest income was voluntarily disclosed and not concealed. The appellant maintained that there was no furnishing of inaccurate particulars and that the nature of the transaction was disclosed in statutory records.

3. Ambiguity in the Notice Regarding Grounds for Penalty:
The appellant argued that the notice for penalty did not specify whether it was for concealment of income or furnishing inaccurate particulars. This ambiguity was highlighted as a significant issue, with reliance on judicial precedents such as CIT vs. SSA’s Emerald Meadows and Pr. CIT vs. Sahara India Life Insurance Company Ltd., which emphasized the necessity of clear specification in penalty notices.

4. Lack of Explicit Satisfaction Recorded in the Assessment Order:
The appellant contended that the assessment order did not explicitly record satisfaction for imposing the penalty. The Tribunal noted that the assessment order cited "furnishing inaccurate particulars of income" for technical services, but the penalty was levied for not offering interest income to tax, indicating a lack of clear satisfaction.

5. Voluntary Disclosure of Interest Income and Lack of Intent to Conceal:
The appellant highlighted that the interest income was voluntarily disclosed through a letter to the AO before the issuance of the scrutiny notice. The Tribunal acknowledged that the appellant had no opportunity to revise the return due to the belated filing and had proactively rectified the mistake.

6. Acceptance of Voluntary Disallowance by the Appellant and Failure to Demonstrate Concealment:
The Tribunal observed that the AO accepted the voluntary disallowance made by the appellant but failed to demonstrate how the appellant concealed income or furnished inaccurate particulars.

7. Non-Appeal of the Said Amount Not Amounting to Concealment:
The appellant argued that the decision not to appeal the amount did not automatically lead to the imposition of penalty for concealment. The Tribunal agreed, noting that the absence of an appeal does not equate to an admission of concealment.

8. Time-Barred Penalty Order under Section 275(1)(c):
The appellant argued that the penalty order was time-barred as the interest income was not a subject matter of the quantum appeal before the CIT(A). The Tribunal did not find a specific ruling on this issue but focused on the invalidity of the penalty due to other reasons.

Conclusion:
The Tribunal found that the penalty proceedings were not sustainable due to the lack of valid satisfaction recorded by the AO, the ambiguity in the penalty notice, and the voluntary disclosure of interest income by the appellant. The Tribunal relied on judicial precedents to conclude that the penalty was imposed based on an invalid and ambiguous notice, thus ordering the deletion of the penalty and allowing the appeal filed by the assessee. The order was pronounced on March 3, 2021.