2018 (8) TMI 507 - AT - Income Tax

Penalty u/s 271(1)(c) - recording of satisfaction - mere direction in the assessment order to initiate penalty proceedings - Concealment/furnishing inaccurate particulars of income - Held that - When the AO is satisfied at the stage of initiation of penalty proceedings of a clear-cut charge against the assessee in any of the three situations discussed above (say, concealment of particulars of income), but imposes penalty by holding the assessee as guilty of the other charge (say, furnishing of inaccurate particulars of income) or an uncertain charge (concealment of particulars of income/furnishing of inaccurate particulars of income), the penalty cannot be sustained. The sum and substance of submissions is that the penalty orders cannot be declared invalid on a wrong mentioning of the charge either in the penalty notices or penalty orders, since such a wrong mentioning is nothing but a mere procedural irregularity. The view canvassed by the ld. DR cannot be countenanced because the action of the AO is not a mere procedural error. These defaults go to the root of the matter. All the Hon ble High courts are consensus ad idem in their opinion on the above issue. Not even a single contrary judgment has been brought on record by the ld. DR. Insofar as invoking section 292B of the Act is concerned, in my view, the same has no applicability, as it is triggered only when there is some mistake, defect or omission in a notice or an order etc., which is otherwise in substance and effect in conformity with or according to the intent and purpose of this Act. The extant defaults in the penalty notices/orders are so fundamental that they cannot be construed as elementary or basic mistakes etc. so as to leave them in substance and effect in conformity with the intent and purpose of the Act. The penalty was wrongly imposed and confirmed in all the four appeals under consideration. I, ergo, agree with the ld. JM. in striking down all the penalty orders. The question posed is, therefore, answered in affirmative to the effect that where the satisfaction of the AO while initiating penalty proceedings u/s 271(1)(c) is with regard to alleged concealment of income by the assessee, whereas the imposition of the penalty is for concealment/furnishing inaccurate particulars of income , the levy of penalty is not sustainable.

Issues Involved:
1. Whether the penalty under section 271(1)(c) of the Income Tax Act, 1961, is sustainable when the satisfaction of the Assessing Officer (AO) while initiating penalty proceedings is for "concealment of income," but the penalty is imposed for "concealment/furnishing inaccurate particulars of income."

Issue-wise Detailed Analysis:

1. Context and Background:
The judgment addresses the sustainability of penalties imposed under section 271(1)(c) of the Income Tax Act, 1961. The penalties were initiated based on the AO's satisfaction regarding the concealment of income but were eventually imposed for "concealment/furnishing inaccurate particulars of income." This discrepancy led to a difference of opinion among the Tribunal members, necessitating a detailed examination by a Third Member.

2. Facts of the Case:
The case involved four appeals from two connected assessees for the assessment years 2008-09 and 2009-10. The AO imposed penalties based on disallowances and non-declaration of interest income, which were confirmed in quantum appeals. The penalties were challenged on the ground that the AO's charge was for "concealment of income," but the penalty orders mentioned "concealment/furnishing inaccurate particulars of income."

3. Legal Framework and Interpretation:
The judgment delves into the interpretation of the terms "concealment of particulars of income" and "furnishing inaccurate particulars of income." The Supreme Court's guidance in CIT vs. U.P. State Forest Corporation was cited, emphasizing that the popular meanings of these terms should be considered. "Concealment" implies hiding details of income, while "furnishing inaccurate particulars" involves providing incorrect details that lead to under-reporting of income.

4. Analysis of Disallowances/Additions:
The judgment scrutinizes the nature of the disallowances/additions forming the basis of the penalties:
- Disallowance of Business Loss: The assessee's action in carrying forward business loss was deemed as "furnishing inaccurate particulars of income" rather than "concealment of particulars of income."
- Non-declaration of Interest Income: The interest income on term deposits and FDRs was treated similarly, as the assessee had reduced these amounts from the expenditure during the construction period, which was visible in the balance sheets. This was also categorized under "furnishing inaccurate particulars of income."

5. Satisfaction Requirement at Different Stages:
The judgment emphasizes that the AO must record satisfaction regarding the nature of the default (concealment or furnishing inaccurate particulars) both at the assessment stage and the penalty stage. The insertion of section 271(1B) by the Finance Act, 2008, clarified that a direction to initiate penalty proceedings in the assessment order constitutes deemed satisfaction.

6. Specification of Charges:
The judgment highlights that the AO must specify the charge clearly in the penalty notice and order. If the AO initiates penalty proceedings for "concealment of particulars of income," the penalty cannot be imposed for "furnishing inaccurate particulars of income" or an uncertain charge combining both. This principle is supported by various High Court rulings, including Manjunatha Cotton and Ginning Factory and Manu Engineering Works.

7. Conclusion:
The judgment concludes that the penalties in the four appeals were invalid due to two main reasons:
- The AO initiated penalties with a specific charge of "concealment of particulars of income" but imposed them for an uncertain charge of "concealment/furnishing inaccurate particulars of income."
- The actual default was "furnishing inaccurate particulars of income," not "concealment of particulars of income," rendering the penalties unsustainable.

8. Final Decision:
The Third Member agreed with the Judicial Member's view to strike down the penalties. The question was answered affirmatively, stating that when the AO's satisfaction for initiating penalty proceedings is for "concealment of income," but the penalty is imposed for "concealment/furnishing inaccurate particulars of income," the levy of penalty is not sustainable. The appeals were directed to be listed before the Division Bench for passing an order in accordance with the majority view.

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