2021 (6) TMI 118 - AT - Income Tax

Penalty u/s 271(1)(c) - addition u/s 68 - share application money received for allotment of 55,57,000 equity shares - allegation of the AO was that the assessee has routed his unaccounted money - HELD THAT - We note that in this case, while passing the penalty order, the AO has not discussed or mentioned the charge on which the penalty was levied. AO has not discussed at all one of the two limbs on which the penalty was proposed to be levied. We are quite convinced with the arguments of the Ld. A.R. that how a penalty could be imposed without AO being satisfied on the charge on which the penalty was proposed to be levied - penalty has been levied in a mechanical manner without application of mind. In our view, this is a serious mistake in the penalty order which is incurable at this stage and the penalty order passed by the AO is an invalid order and therefore can not be sustained. D.R. request that the penalty may be restored to the file of the Ld. CIT(A) can not be accepted at this stage as it will not serve any useful purpose by restoring the appeal to the file of the Ld. CIT(A). This is so because by restoring the penalty to the file of the Ld. CIT(A), the appellate authority can not cure the defect/mistake which has been committed by the AO in the penalty order passed under section 271(1)(c) dated 28.03.2011.- we set aside the order of Ld. CIT(A) by holding that the order of penalty passed under section 271(1)(c) of the Act by the AO is an invalid order and is accordingly quashed. - Decided in favour of assessee.

Summary

Issues:
Challenge to penalty order under section 271(1)(c) for assessment year 2006-07.

Detailed Analysis:

1. Issue of Penalty Imposition:
The appeal was filed against the penalty order dated 18.03.2013 by the Commissioner of Income Tax (Appeals) confirming a penalty of ?9,35,24,310 imposed under section 271(1)(c) of the Income Tax Act. The penalty was related to the addition of ?27,78,50,000 received as share application money, alleged to be unaccounted money routed by the assessee. The AO imposed the penalty for filing inaccurate particulars of income. The assessee challenged this penalty before the CIT(A), who upheld the penalty, stating that the assessee mobilized unaccounted money through various transactions. The issue was whether the penalty was rightly imposed without specifying the charge against the assessee.

2. Contentions of the Parties:
The assessee's representative argued that the penalty order was invalid as it did not mention the charge on which the penalty was levied, making it non-est and invalid in the eyes of the law. The representative highlighted that such a significant penalty could not be imposed without specifying the charge. On the other hand, the Revenue's representative contended that the charge omission was irrelevant as the quantum appeal had been referred back to the CIT(A) for reconsideration. The Revenue suggested restoring the penalty issue to the CIT(A) for fresh consideration.

3. Judgment and Analysis:
Upon reviewing the penalty order and submissions, the Tribunal noted that the AO failed to discuss or mention the charge for imposing the penalty under section 271(1)(c). The Tribunal agreed with the assessee's argument that the penalty was mechanically imposed without proper application of mind, rendering the penalty order invalid and unsustainable. The Tribunal declined the Revenue's request to refer the penalty issue back to the CIT(A) as it would not rectify the AO's mistake. Consequently, the Tribunal allowed the assessee's appeal, setting aside the CIT(A)'s decision and quashing the penalty order under section 271(1)(c) as invalid.

4. Conclusion:
The Tribunal's decision highlighted the importance of specifying the charge while imposing penalties under the Income Tax Act. The judgment emphasized that penalties must be based on a thorough consideration of facts and charges, and any omission in this regard could render the penalty order invalid. The Tribunal's ruling in this case favored the assessee, emphasizing the necessity for proper legal procedures and considerations in penalty imposition.