2017 (1) TMI 396 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - Concealed particulars of income or furnished inaccurate particulars of income - as per AO assessee has willfully concealed its income and has given inaccurate particulars of income by taking bogus bills - as per CIT(A) AO initiated the penalty u/s 271(1)(c) under both the limbs i.e. concealed the particulars of income and furnished inaccurate particulars of income and at the time of notice u/s 274 he simply has ticked in prescribed proforma concealed particulars of income or furnished inaccurate particulars of income without deleting either limb of penalty Held that - It is observed that assessment proceedings and penalty proceedings are two separate proceedings. The addition made during assessment proceedings does not lead to conclusion that the assessee was having some undisclosed income or concealed the particulars of income. The addition in assessment order may be because of some technical reasons which do not mean that the assessee had concealed income. Therefore, for imposing a penalty, the AO had to prove that the assessee was having concealed income. The penalty u/s 271(1)(c) of the Act is not automatic and for imposing penalty u/s 271(1)(c) of the Act, the AO had to brought on record any positive material to show that the assessee concealed his income. Hon ble Karnataka High Court in the case of CIT vs. M/s Manjunatha Cotton & Ginning Factory & Ors.(2013 (7) TMI 620 - KARNATAKA HIGH COURT) held that sending printed form where all the grounds mentioned in section 271 would not satisfy the requirement of law. The assessee should know the ground which he has to meet specifically, otherwise, the principle of natural justice is offended on the basis of such proceedings, no penalty could be imposed to the assessee. As in the case of Tej Bhan Cotton Ginning & Pressing Factory Vs. CIT, Rohtak (2010 (12) TMI 110 - PUNJAB AND HARYANA HIGH COURT ) has held that the Assessing Officer in assessment order has satisfied himself regarding initiation of penalty proceedings, which was tantamount to satisfaction have recorded to the fact on the basis of addition made by the Assessing Officer for concealed income in assessment order. The Hon ble Court has confirmed the penalty even penalty proceedings initiated by the Assessing Officer by mentioning penalty proceeding for concealing/furnishing of inaccurate particulars of income. The Hon ble Punjab & Haryana High Court has expressed different view on initiation of penalty proceedings even notice U/s 274 issued by putting oblique between concealing and furnishing of inaccurate particulars of income whereas the Hon ble Karnataka High Court has held that the Assessing Officer has to satisfy at the time of initiation of penalty proceeding and issuing notice U/s 274 of the Act that whether penalty is for concealed particulars of income or furnishing of inaccurate particulars of income. There were two opinions of the Hon ble Courts. The Hon ble Supreme Court has held that in case of two views of the court, favorable view of the assessee would be taken as held in the case of CIT Vs Vegetable Products Ltd. (1973 (1) TMI 1 - SUPREME Court ) and a recent decision in the case of CIT Vs. Vatika Township P Ltd. (2014 (9) TMI 576 - SUPREME COURT ). Therefore, we are of the considered view that initiation of penalty proceedings is not as per law and Assessing Officer did not have any jurisdiction to impose penalty U/s 271(1)(c) of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act.
2. Justification of the penalty imposed under Section 271(1)(c) amounting to ?1,22,400/-.

Issue-wise Detailed Analysis:

1. Validity of the initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act:

The primary contention raised by the assessee was that the penalty proceedings initiated under Section 271(1)(c) were invalid as the notice issued under Section 274 did not specify the exact charge, i.e., whether it was for "concealment of income" or "furnishing inaccurate particulars of income." The assessee argued that this lack of specificity in the notice led to a jurisdictional error, rendering the penalty proceedings void ab initio. The assessee relied on the decision in the case of Shankar Lal Khandelwal vs. DCIT, where it was held that the penalty proceedings must clearly state the specific charge to meet the requirements of natural justice.

The Tribunal considered the assessee's submission and noted that the penalty proceedings were initiated without specifying the limb under which the penalty was being levied. The Tribunal observed that the Assessing Officer (AO) had used a standard proforma without striking off the irrelevant part, which indicated non-application of mind. This was in line with the principles laid down in various judicial decisions, including the Karnataka High Court's ruling in CIT vs. Manjunatha Cotton and Ginning Factory, which emphasized that the notice under Section 274 should clearly state the grounds for penalty to ensure the assessee's right to a fair hearing.

The Tribunal concluded that the initiation of penalty proceedings was not in accordance with the law, as the AO did not specify the exact charge in the notice. This procedural lapse was deemed sufficient to invalidate the penalty proceedings.

2. Justification of the penalty imposed under Section 271(1)(c) amounting to ?1,22,400/-:

The Tribunal further examined whether the penalty of ?1,22,400/- imposed under Section 271(1)(c) was justified. The AO had imposed the penalty on the grounds that the assessee had willfully concealed income and furnished inaccurate particulars by taking bogus bills for software purchases. The AO's findings were based on the statement of Shri Sanjay D. Sonawani, who admitted to issuing non-genuine bills.

The Tribunal noted that the penalty proceedings and assessment proceedings are distinct. The mere fact that an addition was made during the assessment does not automatically justify the imposition of a penalty. The AO must bring on record positive material to prove that the assessee consciously concealed income or furnished inaccurate particulars.

In this case, the Tribunal found that the AO had not conducted any independent inquiries to substantiate the claim of bogus bills. The assessee had made the payment through an account payee cheque and had capitalized the software expenses, which were not claimed as revenue expenditure. The Tribunal observed that the AO relied solely on the statement of Shri Sanjay D. Sonawani without providing the assessee an opportunity to cross-examine him, which violated the principles of natural justice.

The Tribunal also referred to various judicial precedents, including decisions of the Rajasthan High Court and the Supreme Court, which held that penalty under Section 271(1)(c) is not automatic and must be based on concrete evidence of concealment or furnishing inaccurate particulars.

Given the lack of independent evidence and the procedural lapses in the penalty proceedings, the Tribunal concluded that the penalty of ?1,22,400/- was not justified and directed its deletion.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the initiation of penalty proceedings under Section 271(1)(c) was invalid due to the non-specific nature of the notice issued under Section 274. Additionally, the Tribunal found that the penalty imposed was not justified as the AO failed to provide independent evidence of concealment or furnishing inaccurate particulars. The penalty of ?1,22,400/- was directed to be deleted.