2017 (3) TMI 82 - AT - Income Tax

Penalty u/s 271 (1)(C) - proof of concealment of income - Held that - There is no specific charge by the Assessing Officer. Further, it is noted that the Assessing Officer in penalty order has proceeded on the basis of the assumption that the assessee is satisfied with the assessment order. Therefore, it appears that the assessee has nothing to say and has no objection regarding the imposing of the penalty under section 271(1)(c) of the Act. In our considered view, the assessing officer was not justified in imposing the penalty on this basis, the action of the assessing officer is contrary to the provision of law. The ld. CIT (A) without considering the binding precedents proceeded to hold that the penalty order can not be invalidated on account of any mistake or affect or omission if anywhere in view of the provision of section 292B of the Act. This finding of the Ld. CIT (A) is contrary to the judgment of the Hon ble Karnataka High Court rendered in the case of CIT and Another Vs. Manjunatha Cotton and Ginning Factory,(2013 (7) TMI 620 - KARNATAKA HIGH COURT ) As the initiation of penalty under section 271(1)(c) vide notice 274 of the Act is not inconformity with the requirement of the law. Thus, the Penalty order can not be sustained in the eyes of the law. Same deserves to be quashed. We find merit into the contention of the ld. Counsel for the assessee that out of two additions one addition of ₹ 61,09,482/- was wrongly made and the assessee has furnished all material facts before the Assessing Officer under these facts the assessing officer ought not to have levied the penalty. We find force into the contention of Ld. Counsel for the assessee that in the penalty proceeding the AO should consider the facts in right perspective. He should come to a specific finding with regard to concealment of income. In the considered view, the explanation as given by the assessee ought to have been considered by the AO, The AO should not to have passed penalty order in a mechanical way merely on the assumption that the assessee has accepted the charge of concealment of income. - Decided in favour of assessee

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Specificity required in the penalty notice under Section 274.
3. Validity of penalty proceedings and orders.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The assessee challenged the imposition of a penalty amounting to ?34,05,436/- under Section 271(1)(c) for the assessment year 2012-13. The primary contention was that the Assessing Officer (AO) erred in imposing the penalty without specifying whether it was for "concealment of particulars of income" or "furnishing of inaccurate particulars of income." The AO's penalty order dated 30.09.2015 mentioned that the assessee had concealed income, while the CIT(A) confirmed the penalty by stating that the assessee had furnished inaccurate particulars of income. This discrepancy formed the basis of the appeal.

2. Specificity Required in the Penalty Notice under Section 274:
The Tribunal emphasized the need for specificity in the penalty notice under Section 274. It was noted that the AO issued a standard form notice without striking out the irrelevant parts, thus failing to specify whether the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." This lack of clarity was deemed a violation of natural justice principles, as it did not provide the assessee with a clear understanding of the charges to be contested. The Tribunal referred to multiple judicial precedents, including the Karnataka High Court's decision in CIT vs. Manjunatha Cotton and Ginning Factory, which held that such non-specific notices are invalid and offend principles of natural justice.

3. Validity of Penalty Proceedings and Orders:
The Tribunal found that the penalty proceedings were initiated and imposed without proper application of mind, as evidenced by the non-specific penalty notice and the contradictory findings of the AO and CIT(A). The Tribunal cited several cases, including the ITAT Jaipur Bench's decision in Shankar Lal Khandelwal vs. DCIT, where similar non-specific penalty notices were deemed invalid. The Tribunal concluded that the initiation and imposition of penalty proceedings were "wrong, bad in law, invalid, and void ab initio." Consequently, the penalty order was quashed.

Conclusion:
The Tribunal allowed the appeal, setting aside the penalty imposed under Section 271(1)(c) due to the procedural lapses and lack of specificity in the penalty notice, which violated the principles of natural justice. The decision underscored the importance of clear and specific charges in penalty notices to ensure fair proceedings.