2017 (9) TMI 963 - AT - Income Tax

Penalty under section 271(1)(c) - validity of notice u/s 274 - bonafide explanation - false claim made by assessee - Held that - Manjunath Cotton and Ginning Factory (2013 (7) TMI 620 - KARNATAKA HIGH COURT ) and held that in absence of specifying the limb of the 271(1)(c) of the Act under which penalty is to be levied, the notice under section 274 read with section 271(1)(c) of the Act was bad in law. We find that the assessee has not filed before us the copy of notice under section 274 read with section 271(1)(c) of the Act issued in the case of the assessee. In absence of a copy of such a notice, the decisions relied upon by the Ld. counsel cannot be applied in the case of the assessee. We also note that the issue of specifying charges in the notice under section 274 read with section 271(i)(c) of the Act was not raised specifically before the Ld. CIT- (A) and hence he has not adjudicated on this issue. Further, we find that in the assessment order as well as in penalty order, the Assessing Officer has clearly specified the charges for initiating penalty u/s 271(1)(c) of the Act. We also note that the Ld. CIT-(A) following the decision of the Hon ble Delhi High Court in the case of Madhushree Gupta Vs. CIT (2009 (7) TMI 38 - DELHI HIGH COURT) has already rejected the argument of not mentioning in the impugned penalty order as to whether the penalty was levied on account of concealment or on account of furnishing of inaccurate particulars. We agree with the finding of the Ld. CIT-(A) that the assessee being a part of a large industry group having the assistance of lawyers, professionals and chartered accountants, cannot be allowed to shift the burden on the accountant, who being an employee of the assessee was not having any choice except filing affidavit. The Ld. CIT- (A) has also pointed out that it is not the case of the assessee that income from house property was declared for first-time in the year under consideration. The Ld. counsel has failed to rebut any of the above finding of the Ld. CIT-(A). The claim of depreciation and repair & maintenance expenses made in return of income is a clear case of false claim by the assessee and no bonafide explanation has been given by the assessee. - Decided against assessee.

Issues Involved:
1. Legality and jurisdiction of the notice issued under Section 271(1)(c) of the Income Tax Act, 1961.
2. Failure to record satisfaction before initiating penalty proceedings under Section 271(1)(c).
3. Specification of the charge for which penalty was levied.
4. Imposition of penalty of ?4,85,597/- under Section 271(1)(c).
5. Disallowance of depreciation and maintenance charges claimed by the assessee.
6. Adherence to established legal principles and judicial pronouncements.
7. Bonafide nature of the explanation provided by the assessee.
8. Proper consideration and judicial interpretation of the information filed.
9. Judicial consideration of submissions filed by the assessee.
10. Legality and factual accuracy of observations and allegations in the impugned order.
11. Right to modify grounds of appeal.

Issue-wise Detailed Analysis:

1. Legality and Jurisdiction of Notice:
The assessee argued that the notice issued under Section 271(1)(c) and the subsequent penalty order were illegal, bad in law, and without jurisdiction. The Tribunal upheld the CIT(A)'s view that the objection was hyper-technical and did not demonstrate any prejudice caused to the assessee. The Tribunal cited the Delhi High Court decision in Madhushree Gupta vs. CIT, which states that if the AO has given his mind in the assessment order while initiating penalty proceedings, nothing else is required.

2. Failure to Record Satisfaction:
The assessee contended that no satisfaction was recorded before initiating penalty proceedings. The Tribunal found that the AO had clearly specified the charges in both the assessment and penalty orders, rejecting the assessee’s argument.

3. Specification of Charge:
The Tribunal noted that the assessee did not provide a copy of the notice under Section 274 read with Section 271(1)(c). The Tribunal referred to the Karnataka High Court decision in CIT Vs. Manjunath Cotton and Ginning Factory, which requires specific grounds to be stated in the notice. However, without the notice, the Tribunal could not apply this decision and relied instead on the clear specification of charges in the assessment and penalty orders.

4. Imposition of Penalty:
The Tribunal upheld the penalty of ?4,85,597/- imposed by the AO. The AO had initiated penalty proceedings due to the wrongful claim of depreciation and repair and maintenance expenses on properties given on rent, despite claiming deductions under Section 24(1).

5. Disallowance of Depreciation and Maintenance Charges:
The AO disallowed the depreciation and maintenance charges claimed by the assessee, as the rental income was declared under "Income from house property" with deductions already claimed under Section 24(1). The Tribunal agreed with the AO and CIT(A) that the wrongful claims were not bonafide mistakes.

6. Adherence to Legal Principles:
The Tribunal found that the CIT(A) had considered relevant judicial pronouncements and upheld the penalty based on the principles established in those cases, including the Delhi High Court decision in CIT Vs. Zoom Communication Pvt. Ltd.

7. Bonafide Explanation:
The assessee claimed the wrongful claim was a bonafide mistake by the accountant. The Tribunal upheld the CIT(A)'s rejection of this explanation, noting that the assessee, being part of a large industry group with professional assistance, could not shift the blame to an accountant.

8. Consideration and Interpretation of Information:
The Tribunal found that the AO and CIT(A) had properly considered and interpreted the information on record. The penalty was deemed just, legal, and not arbitrary.

9. Judicial Consideration of Submissions:
The Tribunal agreed with the CIT(A) that the submissions filed by the assessee were considered judiciously. The CIT(A) had rejected the arguments based on established judicial principles.

10. Legality and Factual Accuracy:
The Tribunal upheld the CIT(A)'s findings, rejecting the assessee's claim that the observations and allegations were illegal and contrary to facts.

11. Right to Modify Grounds of Appeal:
The Tribunal acknowledged the assessee's right to modify grounds of appeal but found no merit in the arguments presented.

Conclusion:
The Tribunal dismissed the appeal, upholding the penalty imposed by the AO and sustained by the CIT(A). The decision emphasized the importance of clear specification of charges and adherence to legal principles in penalty proceedings.

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