2017 (5) TMI 1209 - AT - Income Tax

Penalty u/s 271(1)(C) - absence of satisfaction - proof of concealment - surrender of income by assessee - Held that - We have perused the penalty notice dated 24/12/2009 and we note that Ld. assessing officer has not cancelled any of two options. Therefore in the show cause notice the Ld. assessing officer has not at all made up his mind that whether the assessee has concealed income or furnished inaccurate particulars of income. On examination of assessment order passed by the Ld. assessing officer he has merely mentioned that penalty proceedings are initiated separately. Therefore even in the assessment order the Ld. assessing officer has not given a satisfaction whether there is concealment of income or furnishing of inaccurate particulars of income. Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty unless it is discernible from the assessment order that it is on account of such unearthing or enquiry concluded by the authorities. No doubt the surrender from the assessee has come after detection by the revenue authorities however before leaving any penalty the revenue authorities must put a specific charge on the assessee which in this case it has failed to. As assessing officer was not sure whether it is a consequence of furnishing of inaccurate particulars of income or concealment of income therefore on conjoint readings of assessment order show cause notice and penalty order it is apparent that one cannot discern that charge on the assessee is whether furnishing inaccurate particulars of income or of concealment of income. We direct the Ld. assessing officer to delete the penalty under section 271(1)(C) - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction to impose penalty under Section 271(1)(C) without recording mandatory satisfaction.
2. Legality and validity of the penalty order.
3. Violation of principles of natural justice and limitation.
4. Burden of proof for concealment of income or furnishing inaccurate particulars.

Issue-wise Detailed Analysis:

1. Jurisdiction to Impose Penalty:
The assessee argued that the Commissioner of Income Tax (Appeals) erred in confirming the penalty imposed by the Assessing Officer (AO) under Section 271(1)(C) without recording the mandatory satisfaction as per law. The tribunal examined the assessment order and found that the AO merely stated that penalty proceedings were initiated separately without specifying whether the penalty was for concealment of income or furnishing inaccurate particulars. This failure to specify the charge violated the requirement for clear satisfaction, making the penalty jurisdictionally defective.

2. Legality and Validity of the Penalty Order:
The assessee contended that the penalty order was beyond jurisdiction, illegal, and contrary to law and facts. The tribunal noted that the penalty notice did not strike off the irrelevant options, leaving ambiguity about the specific charge against the assessee. The tribunal referenced the Hon'ble Karnataka High Court's decision in CIT vs. Manjunatha Cotton and Ginning Factory, which emphasized that the notice under Section 274 should specifically state the grounds for penalty. The tribunal concluded that the penalty order was unsustainable due to this procedural lapse.

3. Violation of Principles of Natural Justice and Limitation:
The assessee argued that the penalty order violated principles of natural justice and was barred by limitation. The tribunal observed that the AO's failure to specify the charge in the penalty notice and assessment order deprived the assessee of a fair opportunity to defend itself. This lack of specificity offended the principles of natural justice, rendering the penalty proceedings invalid.

4. Burden of Proof for Concealment or Inaccurate Particulars:
The assessee claimed that the AO did not discharge the burden of proving concealment of income or furnishing inaccurate particulars. The tribunal noted that the AO's penalty order mentioned both "furnishing inaccurate particulars" and "concealment of income" without a clear distinction. The tribunal reiterated that the penalty proceedings must clearly specify the charge, and the AO must prove the specific allegation. The tribunal found that the AO failed to meet this burden, as the penalty order was ambiguous and lacked clear findings.

Conclusion:
The tribunal, referencing multiple judicial precedents, including the Hon'ble Karnataka High Court's decision in CIT vs. Manjunatha Cotton and Ginning Factory, concluded that the penalty proceedings were invalid due to the AO's failure to specify the charge and record mandatory satisfaction. The tribunal directed the AO to delete the penalty of ?556,365 under Section 271(1)(C). Consequently, the appeal filed by the assessee was allowed.