2024 (6) TMI 1051 - AT - Income Tax

Penalty u/s 271(1)(c) - precise charge brought against the assessee or not? - proper satisfaction recorded by the AO or not? - additional income offered during the course of search towards inflated expenditure under the head marketing expenses - as argued absence of proper satisfaction recorded by the AO and also show cause as to why penalty proceedings are initiated the AO cannot levy penalty u/s.271(1)(c) - assessee has also challenged penalty levied on estimated addition towards additional income offered by the assessee for inflated expenditure under the head marketing expenses on the ground that allocation of additional income for both assessment years was only on ad hoc basis and there was no evidence with the AO as regards concealment of particulars of income or furnishing of inaccurate particulars of income - HELD THAT - In present case there is no dispute with regard to the fact that there is no satisfaction from the AO in the assessment order which is clearly evident from the assessment order passed by the AO where the AO simply initiated penalty proceedings u/s.271(1)(c) of the Act without specifying a particular charge on the assessee i.e. whether it is concealment of particulars of income or furnishing of inaccurate particulars of income and said lapse even continued in show cause notice issued u/s.274 r.w.s.271(1)(c) of the Act where the AO has issued a printed form of notice without striking of inapplicable portion of the notice. From the above it is very clear that the AO has not arrived at satisfaction whether penalty is initiated for concealment of particulars of income or furnishing of inaccurate particulars of income . In absence of proper notice it cannot be said that the AO has applied his mined to relevant facts and also arrived at satisfaction that the assessee has concealed the particulars of income or furnished inaccurate particulars of income. In absence of specific charge under which limb the penalty proceedings has been initiated the AO cannot levy penalty u/s.271(1)(c) of the Act. In our considered view penalty proceedings initiated u/s.271(1)(c) of the Act by issuing a vague notice u/s.274 r.w.s.271(1)(c) of the Act vitiates the whole proceedings including consequent penalty order passed by the AO and thus order passed by the Assessing Officer imposing penalty u/s 271(1)(c) on the basis of invalid notice cannot be sustained under the law. Thus show cause notice issued by the AO notice u/s.274 r.w.s.271(1)(c) of the Act is vague in nature which does not specify under which limb penalty proceedings u/s.271(1)(c) of the Act are initiated. Therefore we are of the considered view that show cause notice issued by the AO and consequent penalty order passed u/s.271(1)(c) of the Act is void ab initio and liable to be quashed - Decided in favour of assessee.

Summary

Issues Involved:

1. Legality of Penalty under Section 271(1)(c) of the Income Tax Act.
2. Validity of Notice under Section 274 r.w.s. 271(1)(c) of the Income Tax Act.
3. Burden of Proof and Evidence in Penalty Proceedings.
4. Judicial Precedents and Interpretation of Law.

Summary:

1. Legality of Penalty under Section 271(1)(c) of the Income Tax Act:

The assessee contested the penalty levied under Section 271(1)(c), arguing that they neither furnished inaccurate particulars of income nor concealed income. The penalty was based on additional income offered during search proceedings, which the assessee claimed was not backed by incriminating material. The Commissioner of Income Tax (Appeals) upheld the penalty, citing that the assessee's actions fell under Explanation-5(A) of Section 271(1)(c), which deems income concealed if not declared in returns before the search. The Tribunal, however, found that the penalty proceedings were initiated without clear satisfaction from the Assessing Officer (AO) regarding the specific charge, thus invalidating the penalty.

2. Validity of Notice under Section 274 r.w.s. 271(1)(c) of the Income Tax Act:

The Tribunal scrutinized the notice issued under Section 274 r.w.s. 271(1)(c), which did not specify whether the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." The Tribunal emphasized that the AO must clearly record satisfaction and specify the charge in the assessment order or the notice. The lack of specificity in the notice was deemed a violation of natural justice, rendering the penalty proceedings invalid. The Tribunal relied on judicial precedents, including the Hon'ble Supreme Court's decision in CIT v. SSA's Emerald Meadows, which upheld that vague notices vitiate penalty proceedings.

3. Burden of Proof and Evidence in Penalty Proceedings:

The Tribunal noted that the AO must provide clear evidence of concealment or furnishing inaccurate particulars of income. In this case, the additional income was based on estimated disallowances and statements during the search, without corroborative evidence. The Tribunal highlighted that penalty cannot be imposed merely because the assessee agreed to additions during assessment, especially if based on ad-hoc disallowances. The burden of proof lies with the Revenue to show that the assessee's explanation is not bona fide, which was not adequately demonstrated.

4. Judicial Precedents and Interpretation of Law:

The Tribunal referred to several judicial precedents, including decisions from the Hon'ble High Courts of Karnataka and Madras, and the Hon'ble Supreme Court. These precedents consistently held that penalty proceedings require clear and specific charges, and vague notices are invalid. The Tribunal also cited the decision in Babuji Jacob v. ITO, where the Hon'ble Madras High Court quashed penalty proceedings due to defective notices. The Tribunal concluded that the penalty imposed on the assessee was not sustainable under the law due to the procedural defects and lack of clear satisfaction from the AO.

Conclusion:

The Tribunal allowed the appeals filed by the assessee, quashing the penalty orders for both assessment years 2015-16 and 2016-17. The decision emphasized the importance of clear and specific charges in penalty proceedings and adherence to principles of natural justice.