2016 (12) TMI 1012 - AT - Income Tax

Penalty under section 271(1)(c) - Held that - The case before us is not on the footing that the limb of section 271(1)(c) of the Act has not been specified at the time of initiation of penalty, but we are referring to the aforesaid only to emphasize the importance that is placed on the requirement to specify the charge to be made against the assessee out of the two limbs available in section 271(1)(c) of the Act. In the background of such schematic understanding of the operating mechanism of section 271(1)(c) of the Act, in our view, the initiation of penalty on one limb and its imposition ultimately on another limb cannot be sustained. Under these circumstances, in our view, the penalty imposed by the Assessing Officer in the present case on the ground of furnishing of inaccurate particulars of income is unsustainable for the reason that initiation was on another default i.e. concealment of particulars of income. Accordingly, we hold that the penalty imposed under section 271(1)(c) for assessment year 2005-06 is not sustainable and is hereby set-aside. - Decided in favour of assessee

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Difference in the grounds for initiation and imposition of penalty.
3. Validity of penalty proceedings based on concealment versus furnishing inaccurate particulars of income.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Act:
The assessee, an Executive Director of M/s. Ispat Industries Ltd., was subjected to a search action under section 132(1) of the Act. For the assessment year 2005-06, the assessee's original return filed under section 139(1) declared an income of ?1,59,22,176/-, whereas the return filed in response to a notice under section 153A declared an income of ?1,60,26,130/-. The difference of ?1,15,951/- was due to previously unreported interest income. The Assessing Officer (AO) imposed a penalty of ?39,029/- under section 271(1)(c) for this discrepancy, which was upheld by the CIT(A). The assessee argued that the omission was unintentional and due to reliance on staff for filing returns, and no incriminating material was found during the search.

2. Difference in Grounds for Initiation and Imposition of Penalty:
The assessee raised a preliminary objection that the penalty proceedings were initiated for "concealment of particulars of income," but the penalty was imposed for "furnishing inaccurate particulars of income." This discrepancy was argued to be impermissible, citing the Hon'ble Karnataka High Court's judgment in CIT vs. Manjunatha Cotton and Ginning Factory, which states that penalty proceedings initiated under one limb cannot result in a penalty under another limb.

3. Validity of Penalty Proceedings:
The Tribunal examined the AO's assessment order, which indicated that penalty proceedings were initiated for "concealment of particulars of income." However, the penalty order concluded that the assessee had "furnished inaccurate particulars of income." This inconsistency rendered the penalty proceedings invalid. The Tribunal referred to the legal principles laid down by the Hon'ble Karnataka High Court and the Hon'ble Gujarat High Court, emphasizing that the specific charge must be clear and consistent throughout the penalty proceedings to uphold the principles of natural justice.

Conclusion:
The Tribunal held that the penalty imposed under section 271(1)(c) was unsustainable due to the inconsistency between the initiation and imposition grounds. The penalty of ?39,029/- for the assessment year 2005-06 was set aside. This decision applied mutatis mutandis to the appeals for assessment years 2006-07 to 2010-11, leading to the allowance of all appeals by the assessee.

Order Pronounced:
The order was pronounced in the open court on 21/10/2016, allowing all the appeals of the assessee.

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