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2018 (7) TMI 1319 - AT - Income TaxPenalty u/s 271(1)(c) - non specification of charge - defective notice - Held that - Bare perusal of the notice issued u/s 274 read with section 271(1)(c) of the Act in order to initiate penalty proceedings against the assessee goes to prove that the AO himself was not aware as to whether he is issuing notice to initiate the penalty proceedings either for concealment of particulars of income or furnishing of inaccurate particulars of such income by the assessee rather issued vague and ambiguous notice by incorporating both the limbs of section 271(1)(c). When the charge is to be framed against any person so as to move the penal provisions against him, he/she should be specifically made aware of the charges to be leveled against him/her. Thus the penalty levied by the AO and confirmed by the Ld. CIT(A) is not sustainable in the eyes of law - decided in favour of assessee
Issues Involved:
1. Justification of penalty for concealment/furnishing inaccurate particulars of income. 2. Validity of additions and disallowances based on change of opinion. 3. Proper satisfaction and application of mind for imposing penalty. 4. Basis for concealment or furnishing inaccurate particulars. 5. Legal validity of the penalty order. Issue-wise Detailed Analysis: 1. Justification of Penalty for Concealment/Furnishing Inaccurate Particulars of Income: The primary issue was whether the assessee had concealed particulars of income or furnished inaccurate particulars during assessment proceedings. The Tribunal noted that the assessment was completed under Sections 143(3)/153A of the Income Tax Act, following a search at the assessee's premises. The additions and disallowances were made based on a change of opinion by the Assessing Officer (AO) without any incriminating materials. The AO initiated penalty proceedings under Section 271(1)(c) of the Act, but the Tribunal found that the AO failed to specify whether the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of income," rendering the notice vague and ambiguous. 2. Validity of Additions and Disallowances Based on Change of Opinion: The Tribunal observed that the original assessment had been completed based on the assessee's audited books of accounts, and the declared income was accepted. The subsequent additions and disallowances were made on the basis of a change of opinion by the AO, without any new incriminating evidence. The Tribunal held that such additions and disallowances could not justify the imposition of a penalty. 3. Proper Satisfaction and Application of Mind for Imposing Penalty: The Tribunal emphasized that the AO must be clear and specific about the grounds for imposing a penalty. The notice issued under Section 274 read with Section 271(1)(c) did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars, which indicated a lack of proper satisfaction and application of mind by the AO. The Tribunal relied on the Karnataka High Court's decision in CIT vs. Manjunatha Cotton and Ginning Factory, which held that a vague notice offends the principles of natural justice and is not sustainable. 4. Basis for Concealment or Furnishing Inaccurate Particulars: The Tribunal noted that the penalty could not be imposed merely because the AO disagreed with the assessee's claims. The Tribunal referenced the Supreme Court's decision in CIT vs. Reliance Petro Products Pvt. Ltd., which stated that making an incorrect claim does not amount to furnishing inaccurate particulars unless the information provided is found to be incorrect or false. In this case, the Tribunal found that the assessee had made bona fide claims, and there was no evidence of concealment or furnishing inaccurate particulars. 5. Legal Validity of the Penalty Order: The Tribunal concluded that the penalty order was not justified on the facts and was bad in law. The Tribunal noted that similar penalties for previous assessment years had been deleted by the Tribunal, and the additions/disallowances for the relevant assessment year had been deleted or remanded back to the AO. Therefore, the penalty levied under Section 271(1)(c) was not sustainable. Conclusion: The Tribunal quashed the penalty order, holding that the AO failed to specify the grounds for the penalty, the additions/disallowances were based on a change of opinion, and the assessee had made bona fide claims. Consequently, the appeal filed by the assessee was allowed. The order was pronounced in the open court on 17/7/2018.
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