2023 (10) TMI 303 - AT - Income Tax

Penalty u/s. 271(1)(c) - disallowance of expenses on the ground that they should have been capitalized, it is manifestly a case of furnishing of inaccurate particulars of income - HELD THAT - Every furnishing of inaccurate particulars of income leading to addition ultimately results in enhancement of income. Similarly, every concealment of particulars of income leading to addition results in enhancement of income. Both the limbs (i) furnishing of inaccurate particulars of income and (ii) concealment of particulars of income - are separate and distinct from each other. Whereas the concealment limb refers to additions towards items of income not shown by the assessee; and the limb of furnishing of inaccurate particulars of income would, inter alia, refer to disallowance of expenses claimed by the assessee as deductible. Additions made under both the limbs eventually give a foundation for imposition of penalty u/s. 271(1)(c), subject to the fulfilment of requisite conditions of the section. One cannot say that disallowance of expenses has resulted into concealment of income for furnishing of inaccurate particulars of income . The third category created by the ld. CIT(A) does not find its presence in any part of the provision. Qua one addition, it can either be a case of concealment of particulars of income or furnishing of inaccurate particulars of income. The action of the AO in initiating and passing the order on both the limbs together, can be justified if there are two or more additions made by him - some of them falling in realm of the first limb and others in the second. Howbeit, if there is only one item of addition, that can be either a case of concealment of particulars of income or furnishing of inaccurate particulars of income and cannot be a combination of the two. We are confronted with a situation in which only one addition was made by the AO, which is towards disallowance of expenses. This strictly falls within the ambit of furnishing of inaccurate particulars of income. Penalty ought to have been levied only with reference to furnishing of inaccurate particulars of income without having any reference to the second limb of concealment of particulars of income. It goes without saying that the foundation for any penalty is the charge on which the penalty is levied. It is this charge, as set out in the penalty notice, which the assessee has to meet with culminating into imposition or otherwise of the penalty. As Mohd. Farhan A. Shaikh Anr. 2021 (3) TMI 608 - BOMBAY HIGH COURT has held that if the charge in the notice u/s 274 is vague i.e. irrelevant charge has not been struck off, the penalty order u/s 271(1)(c) gets vitiated. Similar view as passed in PCIT vs. Golden Peace Hotels and Resorts (P.) Ltd. 2020 (2) TMI 333 - BOMBAY HIGH COURT - The SLP of Department against this judgment has since been dismissed in PCIT vs. Golden Peace Hotels and Resorts (P.) Ltd. 2021 (3) TMI 195 - SC ORDER . It is unambiguous from the above enunciation of law that the issuance of a lawful notice u/s 274, clearly setting out the charge for which the penalty is proposed to be levied, is sine qua non, for passing a valid penalty order. Where notice u/s 274 is vague, penalty order gets vitiated. Adverting to the facts of the instant case, we find that the assessee ought to have been visited with the penalty on the charge of furnishing of inaccurate particulars of income. As against that, the penalty order was passed with reference to both, namely, furnishing of inaccurate particulars of income and concealment as well. Under these circumstances, we are satisfied that the order passed by the ld. CIT(A) cannot be sustained. The same is, therefore, overturned and the penalty is directed to be deleted. Appeal is allowed.

Summary

Issues:
The judgment involves the confirmation of a penalty imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2014-15, based on the disallowance of certain expenses claimed by the assessee.

Details of the Judgment:

1. Issue of Penalty Imposition:
The appeal was filed by the assessee against the order of the CIT(A) confirming the penalty imposed by the Assessing Officer. The AO made a disallowance of expenses claimed by the assessee, leading to the penalty under section 271(1)(c). The CIT(A) considered three limbs of the penalty provision and concluded that the case fell under the third limb, involving both concealment and furnishing of inaccurate particulars of income. The Tribunal noted that the nature of the disallowance indicated a case of furnishing inaccurate particulars of income. The Tribunal clarified that concealment and furnishing inaccurate particulars are distinct, and in this case, it was solely a matter of furnishing inaccurate particulars of income.

2. Legal Interpretation and Application:
The Tribunal emphasized that the imposition of a penalty should be based on the specific charge mentioned in the penalty notice. Referring to relevant case law, the Tribunal highlighted that a vague charge in the notice can vitiate the penalty order. In this case, the penalty was imposed for both furnishing inaccurate particulars of income and concealment, whereas it should have been solely based on furnishing inaccurate particulars. The Tribunal concluded that the penalty order, which did not adhere to the specific charge, was not sustainable. Therefore, the penalty imposed by the CIT(A) was overturned, and the penalty was directed to be deleted.

3. Final Decision:
Considering the facts of the case and the legal principles involved, the Tribunal allowed the appeal, emphasizing the importance of a clear and specific charge in the penalty notice for the validity of a penalty order. The penalty imposed on the assessee was deemed unjustified as it did not align with the actual charge of furnishing inaccurate particulars of income. Consequently, the penalty was set aside, and the appeal was allowed.

Order pronounced in the Open Court on 06th October, 2023.