2022 (12) TMI 647 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice - non-strike off of the irrelevant part in the notice issued u/s.271(l)(c) - Addition u/s 68 - HELD THAT - As penalty provisions of Section 271(1)(c) of the Act are attracted, where the assessee concealed the particulars of income or furnished inaccurate particulars of income. It is well settled law that the aforesaid two limbs of Section 271(1)(c) carrying different meanings. A.O. to specify the relevant and exact limb so as to make the assessee aware as to what is the charge made against him so that he can respond adequately which has been violated by the A.O in the Assessment order. A.O. has failed to specify the exact limb under which the penalty proceedings to be initiated. As could be seen from the above the Hon'ble Bombay High Court (Full Bench at Goa) in the case of Mr. Mohd. Farhan A. Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT while dealing with the issue of non-strike off of the irrelevant part in the notice issued u/s.271(l)(c) of the Act, held that assessee must be informed of the grounds of the penalty proceedings only through statutory notice and an omnibus notice suffers from the vice of vagueness. Ratio of this full bench decision of the Hon'ble Bombay High Court (Goa) squarely applies to the facts of the Assessee s case as the A.O. has failed to specify the irrelevant portion of the limb and failed to intimate the assessee the relevant limb and charge for which the notices to be issued. - Decided in favour of assessee.

Summary

Issues:
1. Penalty imposed under section 271(1)(c) of the Income Tax Act.
2. Failure to provide fair opportunity to the appellant during proceedings.
3. Alleged errors in not appreciating facts and circumstances of the case.
4. Addition of unexplained creditors to the assessee's income.
5. Failure to furnish confirmations of creditors due to various reasons.
6. Identification of certain creditors as own concerns of the appellant.
7. Defect in the notice issued for penalty proceedings under section 271(1)(c).

Issue 1: Penalty imposed under section 271(1)(c) of the Income Tax Act
The appellant challenged the penalty order under section 271(1)(c) imposed by the ld. CIT (Appeals) for assessment year 2008-09. The penalty was levied for failure to offer unexplained creditors for tax, amounting to Rs. 5,68,800. The appellant argued that the penalty was unjust as explanations were provided during assessment proceedings, and voluntary surrender was made to avoid litigations. The tribunal noted that penalty provisions are attracted when the assessee conceals or furnishes inaccurate particulars of income. It emphasized the importance of specifying the exact limb under which the penalty proceedings are initiated, which the AO failed to do in this case. Citing a full bench decision of the Hon'ble Bombay High Court, the tribunal held that the notice for penalty proceedings must specify the relevant grounds clearly. Consequently, the tribunal allowed the grounds of appeal, leading to the deletion of the penalty order.

Issue 2: Failure to provide fair opportunity to the appellant during proceedings
The appellant contended that the order passed by the ld. CIT (Appeals) was done hastily and without providing a fair and reasonable opportunity for the appellant to present their case. Despite explanations submitted during assessment proceedings and voluntary surrender of a portion of the amount in question, the penalty was imposed. The tribunal emphasized the importance of procedural fairness and the right to be heard in tax proceedings. It noted that the appellant was not adequately informed of the grounds for penalty, as required by law. The tribunal, therefore, considered this issue in conjunction with the broader challenge to the penalty order and ultimately allowed the appeal on these grounds.

Issue 3: Alleged errors in not appreciating facts and circumstances of the case
The appellant argued that both the ACIT and CIT (A) erred in not appreciating the facts and circumstances of the case, particularly regarding the unexplained creditors. Despite explanations and voluntary actions taken by the appellant, the penalty was imposed. The tribunal acknowledged the appellant's contentions and found that the authorities had not adequately considered the explanations provided. This issue was considered alongside the primary challenge to the penalty order, and the tribunal's decision to delete the penalty order addressed this concern as well.

Issue 4: Addition of unexplained creditors to the assessee's income
The AO had added the amount of unexplained creditors to the assessee's income under section 68 of the Act, treating the entries as unexplained. This addition led to the initiation of penalty proceedings under section 271(1)(c). The tribunal reviewed the assessment order and observed that the AO had failed to specify the exact limb under which the penalty proceedings were initiated, which was a procedural flaw. The tribunal's decision to delete the penalty order addressed this issue by overturning the penalty imposed based on the unexplained creditors.

Issue 5: Failure to furnish confirmations of creditors due to various reasons
The appellant explained that confirmations of creditors could not be furnished during assessment proceedings due to practical difficulties such as paucity of time and changes in addresses. Despite efforts to explain and voluntarily surrender a portion of the amount, the penalty was imposed. The tribunal considered these practical challenges faced by the appellant and found that the authorities had not adequately taken these factors into account. By allowing the appeal and deleting the penalty order, the tribunal addressed this issue by recognizing the appellant's efforts to comply despite challenges.

Issue 6: Identification of certain creditors as own concerns of the appellant
The appellant clarified that two of the creditors were own concerns of the appellant and were inadvertently offered for taxation. The appellant voluntarily paid tax on these amounts, demonstrating a commitment to tax compliance. Despite this voluntary action, the penalty was imposed. The tribunal acknowledged the appellant's proactive approach to rectify the error and found that this aspect was not adequately considered by the authorities. By allowing the appeal and deleting the penalty order, the tribunal addressed this issue by recognizing the appellant's genuine efforts to rectify the inadvertent errors.

Issue 7: Defect in the notice issued for penalty proceedings under section 271(1)(c)
The tribunal highlighted a defect in the notice issued for penalty proceedings under section 271(1)(c), noting that the AO failed to specify the relevant limb under which the penalty was initiated. Citing a full bench decision of the Hon'ble Bombay High Court, the tribunal emphasized the importance of clear and specific grounds in the penalty notice. By allowing the appeal and deleting the penalty order, the tribunal addressed this issue by underscoring the necessity for precise communication of penalty grounds to the appellant.

In conclusion, the tribunal allowed the appeal filed by the assessee, leading to the deletion of the penalty order imposed under section 271(1)(c) for assessment year 2008-09. The decision highlighted procedural lapses, lack of fair opportunity, and failure to appreciate the appellant's explanations and circumstances, ultimately resulting in the tribunal overturning the penalty.