2018 (1) TMI 397 - AT - Income Tax

Penalty levied u/s. 271(1)(c) - Assessing Officer did not strike off and specify the charge/limb for which he is proposing to initiate penalty proceedings - Held that - The notice issued by the Assessing Officer u/s. 274 r.w.s. 271(1)(c) of the Act is on account of non-application of mind and therefore on this account itself the penalty imposed u/s.271(1)(c) is liable to be deleted. Thus we direct the Assessing Officer to delete the penalty levied u/s.271(1)(c) of the Act. See Orbit Enterprises v. Income Tax Officer 2017 (11) TMI 172 - ITAT MUMBAI - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act.
2. Specificity of the charge for penalty initiation (concealment of income vs. furnishing inaccurate particulars).
3. Application of mind by the Assessing Officer in issuing the penalty notice.

Detailed Analysis:

1. Validity of initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act:
The assessee contested the initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, asserting that the Assessing Officer (AO) did not clearly specify whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income." The Tribunal examined the notice issued under Section 274 read with Section 271(1)(c) and found that the AO failed to strike off the irrelevant charge, thus not specifying the exact charge for which the penalty was initiated. This lack of specificity was deemed improper and invalid.

2. Specificity of the charge for penalty initiation (concealment of income vs. furnishing inaccurate particulars):
The Tribunal noted that the AO's assessment order mentioned the initiation of penalty proceedings for furnishing inaccurate particulars of income. However, the penalty order included both charges—furnishing inaccurate particulars and concealment of income. The Tribunal referred to the case of Meherjee Cassinath Holdings v. ACIT, where it was held that non-striking off the irrelevant limb in the notice indicates that the charge against the assessee is not firm. This ambiguity violates the principles of natural justice as it does not inform the assessee of the specific charge to respond to.

3. Application of mind by the Assessing Officer in issuing the penalty notice:
The Tribunal emphasized the necessity for the AO to apply their mind when issuing a penalty notice. The notice issued in a standard proforma without striking out the irrelevant clause demonstrated non-application of mind. The Tribunal cited the Supreme Court's judgment in Dilip N. Shroff, which highlighted that non-striking off irrelevant portions in the notice reflects non-application of mind by the AO. The Tribunal also referenced the Bombay High Court's decision in CIT v. Samson Perinchery, which supported the view that such notices are invalid due to non-application of mind.

Conclusion:
The Tribunal concluded that the notice issued by the AO under Section 274 read with Section 271(1)(c) was invalid due to non-application of mind and lack of specificity regarding the charge. Consequently, the penalty imposed under Section 271(1)(c) was directed to be deleted. The Tribunal did not address other arguments raised by the assessee, as the penalty was deleted on the preliminary point of invalid notice.

Result:
The appeals filed by the assessee were allowed, and the penalty levied under Section 271(1)(c) was ordered to be deleted. The order was pronounced in the open court on January 5, 2018.