2021 (7) TMI 375 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice u/s 274 - non recording of valid satisffaction - HELD THAT - AO has not recorded a valid satisfaction and has also issued invalid notice u/s 271(1)(c) / 274 of the Act, the entire penalty proceedings are vitiated and not sustainable in the eyes of law. Not only this, AO while recording the satisfaction for initiation of penalty proceedings stated that he has furnished inaccurate particulars of income whereas he has levied the penalty for concealment of particulars of income. So, the entire exercise as to initiating the penalty proceedings and levying the penalty are without application of mind, hence not sustainable. Even otherwise, AO by disallowing the prior period expenses has not taken into account the benefit of amnesty scheme taken by the assessee from the Electricity Department. Even AO has not disputed genuineness of expenses claimed by the assessee rather disallowed the same by taking a different view which does not attract the provisions contained u/s 271(1)(c) - We are of the considered view that initiating penalty u/s 271(1)(c) of the Act on the basis of vague and ambiguous notice is not sustainable in the eyes of law - Decided in favour of assessee.

Summary

Issues:
1. Confirmation of penalty under section 271(1)(c) of the Income-tax Act for various additions made by the Assessing Officer.

Analysis:
The Appellate Tribunal ITAT DELHI heard the appeal filed by M/s. Kissan Engineering Works Pvt. Ltd. challenging the penalty order passed under section 271(1)(c) of the Income-tax Act for the assessment year 2010-11. The grounds of appeal included objections to the penalty confirmed by the Commissioner of Income-tax (Appeals) regarding differences in sale amounts, disallowance of electricity expenses, disallowance of expenses of a unit, and addition on account of surrender of additional income. The total amount in question was &8377; 39,03,618. The Assessing Officer had initiated penalty proceedings based on these additions, leading to a penalty of &8377; 18,09,327. The CIT (A) partly allowed the appeal, reducing the penalty to 100%, prompting the assessee to appeal to the Tribunal.

The Tribunal considered the arguments of both parties and reviewed the documents and orders of the revenue authorities. The key issue for determination was whether the assessee had concealed or furnished inaccurate particulars of income during the assessment proceedings. The assessee's representative argued that the show-cause notice issued by the AO did not specify whether the penalty was for concealment or inaccurate particulars, citing relevant court decisions. The notice issued by the AO was found to be vague and ambiguous, not specifying the exact nature of the charge under section 271(1)(c).

The Tribunal referred to Supreme Court and High Court decisions emphasizing the importance of specifying the charge in penalty notices. It concluded that the penalty proceedings initiated based on a vague and ambiguous notice were not sustainable. The AO had not applied his mind to record satisfaction regarding concealment or inaccurate particulars of income. Additionally, the AO's satisfaction for initiating penalty proceedings did not align with the penalty imposed, indicating a lack of proper assessment. The disallowance of prior period expenses without considering the benefit of an amnesty scheme and the genuineness of claimed expenses further weakened the case for penalty under section 271(1)(c).

Ultimately, the Tribunal held that the penalty proceedings were vitiated due to the invalid notice and lack of proper application of mind by the AO. The penalty levied by the AO and upheld by the CIT (A) was ordered to be deleted, and the appeal by the assessee was allowed. The judgment was pronounced on July 9, 2021.