2022 (4) TMI 108 - AT - Income Tax

Penalty u/s 271(1)(c) - As argued no satisfaction or specific charge for levy of penalty u/s.271(1)(c) - HELD THAT - We noted that the Hon ble Madras High Court in its latest decision in the case of Babuji Jacob, 2020 (12) TMI 574 - MADRAS HIGH COURT has categorically held that there is no basis for issuance of notice u/s.271(1)(c) of the Act, where both limbs in the said provision do not get attracted. The Hon ble Madras High Court has distinguished its own decision of Sundaram Finance Ltd. 2018 (5) TMI 259 - MADRAS HIGH COURT and validity of notice issued u/s.271(1)(c) r.w.s. 274 of the Act was decided in favour of the assessee. Respectfully following the same, as in the present case the AO has not strike of the inappropriate charge, we delete the penalty levied by the AO and confirmed by CIT(A). We direct the AO accordingly. Appeal of assessee allowed.

Summary

Issues Involved:
Jurisdictional issue regarding the levy of penalty u/s.271(1)(c) of the Income Tax Act - Lack of specific charge or satisfaction for penalty initiation.

Detailed Analysis:

Issue 1: Jurisdictional Issue - Lack of Specific Charge for Penalty Initiation
The appeal before the Appellate Tribunal arose from the order of the Learned Commissioner of Income Tax (Appeals) in relation to the assessment framed by the Income Tax Officer (ITO) for the assessment year 2011-12. The impugned penalty was levied under section 271(1)(c) of the Income Tax Act. The counsel for the assessee raised a jurisdictional issue, contending that there was no satisfaction or specific charge for the penalty initiation. The notice issued by the AO did not clearly specify the charge for which the penalty was being imposed. The assessee relied on various decisions, including those of ITAT, Chennai Benches, and the Hon'ble Bombay High Court, to support the argument that the penalty imposed without a specific charge is not sustainable. On the other hand, the Senior DR argued that the issue was settled against the assessee by a Jurisdictional High Court decision in the case of Gangotri Textiles Ltd. The High Court's decision emphasized that the assessee cannot raise contentions regarding the defect in the notice if they had understood the notice to be for concealment of income or furnishing inaccurate particulars.

Issue 2: Legal Precedents and Interpretation
The counsel for the assessee cited the decision of the Hon'ble High Court of Madras in the case of CIT vs. Original Kerala Jewellers, which was based on the Karnataka High Court decision in the case of CIT vs. Manjunatha Cotton and Ginning Factory. The High Court held that in the absence of any material showing concealment of income, agreeing to an addition in the assessment does not imply concealment for penalty purposes. The Tribunal's order was upheld by the High Court, emphasizing that the penalty cannot be levied merely based on additions agreed to by the assessee. Furthermore, the counsel highlighted a subsequent decision of the Hon'ble Madras High Court in the case of Babuji Jacob vs. ITO, where it was clarified that objections raised by the assessee regarding the notice and lack of basis for penalty initiation under section 271(1)(c) were valid. The High Court distinguished previous decisions and ruled in favor of the assessee, emphasizing that both limbs of the provision must be satisfied for penalty imposition.

Conclusion:
After considering the arguments and legal precedents, the Appellate Tribunal noted the recent decision of the Hon'ble Madras High Court in the case of Babuji Jacob, which emphasized the necessity for both limbs of section 271(1)(c) to be satisfied for penalty imposition. As the AO had not specified the appropriate charge for penalty initiation, the Tribunal ruled in favor of the assessee and deleted the penalty imposed by the AO and confirmed by the CIT(A). The decision was based on the principle that the notice must clearly establish the basis for penalty imposition under the Income Tax Act. Consequently, the appeal filed by the assessee was allowed, and the penalty was set aside.

Judgment:
The Appellate Tribunal, following the legal principles established by the Hon'ble High Courts and previous decisions, allowed the appeal filed by the assessee, setting aside the penalty imposed under section 271(1)(c) of the Income Tax Act for the assessment year 2011-12. The Tribunal directed the AO to act accordingly based on the lack of a specific charge for the penalty initiation.