2018 (3) TMI 883 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of expenses - non specification of charge - Held that - After perusing the aforesaid contents of the Notice dated 24.12.2009, we are of the view that the AO has initiated the penalty for concealment of particulars of income or furnishing of inaccurate particulars, which is contrary to the provisions of law. We are of the view that notice issued by the AO u/s. 271(1)(c) read with Section 274 of the Act is bad in law as it does not specify which limb of section 271(1) c of the Act, the penalty proceedings had been initiated i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars. Therefore, the penalty in dispute is not sustainable in the eyes of law, hence, we cancel the penalty in dispute. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the penalty order passed by the CIT(A).
2. Justification for confirming the penalty levied under section 271(1)(c) of the Income Tax Act.
3. Assessment of whether the penalty is tenable based on disallowance of expenses.
4. Consideration of natural justice principles in the penalty proceedings.
5. Examination of the concealment or furnishing of inaccurate particulars.
6. Independence of penalty proceedings from disallowance and additions.
7. Requirement for specific satisfaction regarding concealment or inaccurate particulars by the AO.

Issue-Wise Detailed Analysis:

1. Validity of the Penalty Order:
The appellant challenged the validity of the penalty order passed by the CIT(A), arguing that it is both legally and factually flawed. The tribunal found that the notice issued by the AO under section 271(1)(c) did not specify whether the penalty proceedings were for concealment of income or furnishing inaccurate particulars, rendering the penalty order invalid. This view was supported by multiple judicial precedents, including the Karnataka High Court in CIT vs. Manjunatha Cotton and Ginning Factory and the Supreme Court in CIT vs. SSA’s Emerald Meadows.

2. Justification for Confirming the Penalty:
The CIT(A) confirmed the penalty of ?2,30,367/- levied by the AO due to the disallowance of expenses amounting to ?6,77,748/-. The tribunal noted that the AO's notice used a standard format and did not specify the exact nature of the alleged default. This lack of specificity was deemed contrary to the provisions of law, leading to the cancellation of the penalty.

3. Assessment of Penalty Based on Disallowance of Expenses:
The appellant contended that the penalty was not tenable as it was based on disallowance of expenses, which itself was against the facts. The tribunal agreed, emphasizing that penalties cannot be levied merely on the basis of disallowances and additions without clear evidence of concealment or inaccurate particulars.

4. Natural Justice Principles:
The appellant argued that the CIT(A) passed the order without providing an opportunity for being heard, violating the principle of natural justice. The tribunal did not explicitly address this issue, focusing instead on the procedural flaws in the penalty notice.

5. Examination of Concealment or Inaccurate Particulars:
The tribunal found that the AO failed to make a specific allegation regarding the concealment of income or furnishing of inaccurate particulars. The penalty notice used ambiguous language, ticking both options without clear indication, which was deemed insufficient for sustaining the penalty.

6. Independence of Penalty Proceedings:
The appellant highlighted that penalty proceedings are independent and cannot be solely based on disallowances and additions. The tribunal concurred, noting that the penalty should be based on clear findings of concealment or inaccurate particulars, which were absent in this case.

7. Requirement for Specific Satisfaction:
The tribunal emphasized the necessity for the AO to record specific satisfaction regarding concealment or furnishing of inaccurate particulars. The lack of such specific satisfaction in the assessment order rendered the penalty unsustainable.

Conclusion:
The tribunal allowed the appeal, canceling the penalty imposed by the AO. The decision was based on the procedural flaws in the penalty notice and the absence of specific allegations and satisfaction regarding concealment or inaccurate particulars. The tribunal's decision was consistent with various judicial precedents, reinforcing the requirement for clear and specific findings in penalty proceedings.

Order Pronouncement:
The appeal filed by the assessee was allowed, and the order was pronounced in the Open Court on 01/03/2018.