2022 (9) TMI 48 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice u/s 274 - case of the assessee that the AO while imposing penalty was in a mind of ambiguity and has not arrived at a proper satisfaction since both in the penalty order as well as in the notice u/s 274 r.w.s. 271(1)(c) - HELD THAT - AO in the entire process of initiation of levy of penalty u/s 271(1)(c) was ambiguous and did not have any clarity of mind so as to under which limb of the provision, he intend to impose penalty on the assessee. There is no evidence on record to suggest that the A.O has arrived at any satisfaction. As per the penalty order and the notice u/s 274 r.w.s. 271(1)(c) of the Act, it is clear that there was ambiguity in the mind of A.O so that he has not struck off the inappropriate limb of the provision and has retained both the limbs i.e. concealment of income and furnishing of inaccurate particulars of income while imposing penalty. This exercise is not at all warranted in the realm of income-tax proceedings. The jurisdictional High court in the case Shri Samson Perinchery 2017 (1) TMI 1292 - BOMBAY HIGH COURT has held that the A.O is under obligation to satisfy the appropriate limb of section 271(1)(c) at the time of initiation of levy of penalty. We have also observed that the notice u/s 274 r.w.s. 271(1)(c) is ambiguous and that the A.O has not arrived at satisfaction as to which limb of the provision he is levying the penalty. A.O has not struck off the inappropriate limb of the provision which is evidently noticed. We set aside the order of the ld. CIT(A) and direct the A.O to delete the penalty from the hands of the assessee. The ground of appeal of the assessee is allowed.

Summary

Issues:
Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961 based on ambiguity in specifying the limb of the provision.

Analysis:
The appeal before the Appellate Tribunal ITAT Pune emanated from the order of the ld. CIT(A)-2, Pune for A.Y. 2011-12 concerning the imposition of a penalty under section 271(1)(c) of the Income-tax Act, 1961. The assessee, a partner in a Partnership firm, challenged the penalty imposed on unexplained cash credit. The primary contention was the lack of proper hearing opportunity and ambiguity in the penalty imposition process.

Upon review, it was observed that the A.O had initiated the penalty under both limbs of section 271(1)(c) without specifying the exact limb for which the penalty was imposed. The ambiguity persisted in both the penalty order and the notice issued, indicating a lack of clarity in the A.O's mind regarding the basis for the penalty imposition.

The Tribunal highlighted the importance of the A.O satisfying the appropriate limb of section 271(1)(c) at the initiation of the penalty levy, as established in relevant case law. Citing the decision of the Hon'ble Bombay High Court, it was emphasized that a show cause notice must specify whether there was concealment of income or furnishing of inaccurate particulars to avoid vitiating the penalty proceedings.

Based on the legal grounds of ambiguity in specifying the penalty provision's limb, the Tribunal set aside the CIT(A)'s order and directed the A.O to delete the penalty imposed on the assessee. The appeal was allowed on this legal ground, without delving into the merits of the case, ultimately resulting in the allowance of the assessee's appeal against the penalty.

In conclusion, the Tribunal's decision underscored the necessity for clarity and specificity in penalty imposition under section 271(1)(c) of the Income-tax Act, emphasizing the importance of adhering to legal requirements to avoid ambiguity and ensure procedural fairness in tax proceedings.