2016 (12) TMI 1407 - AT - Income Tax

Levy of penalty under section 271(1)(c) - assessment proceedings under section 153A - Held that - Assessing Officer while completing assessment proceedings under section 153A r.w.s. 143(3) of the Act in respect of additional income offered by the assessee pursuant to search, was satisfied that the assessee has concealed income and also furnished inaccurate particulars of income. It may be reiterated here that no further addition was made by the Assessing Officer except the additional income which was offered by the assessee in its return of income. So at best, it is the case of concealment of income where the assessee had offered the income on the basis of incriminating documents found during the course of search. Assessing Officer does not record satisfaction in this regard but is satisfied that penalty for concealment under section 271(1)(c) of the Act is to be levied on account of either concealment of income or furnishing of inaccurate particulars of income. The notice issued under section 274 r.w.s. 271(1)(c) of the Act also suffers from infirmity, where either of the limbs has not been struck off. Hence, there is vagueness and ambiguity in the notice issued. Since the assessee in the present set of facts was not aware of exact charge of the Department against him, then the initiation of penalty proceedings are vitiated and the same are to be quashed. Relying on the ratio laid down by the Pune Bench of Tribunal in Kanhaiyalal D. Jain Vs. ACIT (2016 (12) TMI 1238 - ITAT PUNE ), we hold that penalty notice issued in the present case suffers from infirmity i.e. lack of satisfaction and lack of notice being issued in making the assessee aware of exact charge against him, hence, the same is quashed. - Decided in favour of assessee

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Jurisdiction of levy of penalty.
3. Satisfaction recorded by the Assessing Officer.
4. Validity of notice issued under section 274 r.w.s. 271(1)(c) of the Act.

Detailed Analysis:

Issue 1: Levy of Penalty under Section 271(1)(c)
The primary issue in these appeals pertains to the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961. The assessee contended that the penalty was levied based on a declaration made during a search, which was duly reflected in the return filed. The assessee argued that there were no other documents proving concealment of income to justify the penalty. The Assessing Officer initiated penalty proceedings under section 271(1)(c) for concealing income and furnishing inaccurate particulars of income, based on the additional income declared by the assessee due to the search action.

Issue 2: Jurisdiction of Levy of Penalty
The assessee raised an additional ground of appeal challenging the jurisdiction of the levy of penalty, arguing that the penalty order passed under section 271(1)(c) was null and void since the notice issued by the Assessing Officer was bad in law. The Tribunal admitted this additional ground as it goes to the root of the matter and does not involve any investigation into facts.

Issue 3: Satisfaction Recorded by the Assessing Officer
The assessee argued that the satisfaction recorded by the Assessing Officer while initiating penalty proceedings was flawed. The Assessing Officer initiated proceedings on both the limbs of section 271(1)(c), i.e., for concealment of income and for furnishing inaccurate particulars of income. The Tribunal emphasized that the Assessing Officer must record a clear satisfaction indicating the specific charge against the assessee, as per the statutory requirement.

Issue 4: Validity of Notice Issued under Section 274 r.w.s. 271(1)(c)
The Tribunal examined whether the notice issued under section 274 r.w.s. 271(1)(c) was valid. The Tribunal referred to several judicial precedents, including the decision of the Karnataka High Court in CIT & Anr. Vs. Manjunatha Cotton and Ginning Factory, which held that the notice must specify the exact charge against the assessee, i.e., whether it is for concealment of income or for furnishing inaccurate particulars of income. The Tribunal found that the notice issued in this case was ambiguous and did not strike off the irrelevant part, thereby causing prejudice to the assessee's right to a reasonable opportunity of being heard.

Conclusion:
The Tribunal concluded that the satisfaction recorded by the Assessing Officer was not clear and the notice issued under section 274 r.w.s. 271(1)(c) was invalid due to its vagueness and ambiguity. Consequently, the penalty proceedings were vitiated and held to be invalid. The Tribunal allowed the appeals of the assessee, quashing the penalty proceedings on the grounds of lack of proper satisfaction and invalid notice. The Tribunal's decision applied to all the assessment years under appeal, resulting in the deletion of the penalties levied under section 271(1)(c) of the Act.