2018 (10) TMI 421 - AT - Income Tax

Penalty levied u/s.271(1)(c) - reopening of assessment - assessee contented that show cause notice was never served on the assessee and therefore penalty order suffers from principles of natural justice and barred by limitation - assessee filed revised return voluntarily - Defective notice - Held that - valid reason to disturb the finding that the penalty order suffers from principles of natural justice and barred by limitation. The Revenue could not produce any evidence to show that the penalty order was in fact passed on 30.09.2014 and why it could not be served immediately after passing the order and why it took one month to serve the order. The conduct shows that the order was passed beyond limitation period but was dated 30.09.2014. It is not in dispute that the assessee filed revised return voluntarily on 31.10.2011 and this return was regularized by issue of notice u/s. 148 on 25.03.2013. From the reasons recorded for reopening there is no material on record to suggest that there is a concealment of income by the assessee, except the revised return where the assessee himself has offered the additional income. The reasons for reopening clearly specify that the assessee has voluntarily accepted and offered the income for the Assessment year 2006-07 on account of not maintaining the records of closed bank account and this is said to be the reason to believe that the income escaped assessment which in our view is not correct. There is no enquiry at all, there is nothing on record to suggest that the income had escaped assessment and the assessee offered additional income voluntarily and the Department has not detected any concealed income of the assessee. No detection of any concealed income by the assessee and the assessment was reopened u/s.148 is only to regularize the revised return filed by the assessee who offered an additional income - No infirmity in the order passed by the Ld.CIT(A) in deleting the penalty. Non-striking off of irrelevant charge in the notice in initiation penalty proceedings - Held that - Identical situation has been considered by the Coordinate Bench in Meherjee Cassinath Holdings v. ACIT 2017 (5) TMI 904 - ITAT MUMBAI said that action of the Assessing Officer in non-striking off relevant clause in the notice shows that the charge being made against the assessee is not firm therefore proceedings suffer from non-compliance with principles of natural justice in as much as the Assessing Officer himself is not sure of the charge and the assessee is not made aware as to which of the two limbs of section u/s. 271(1)(c) of the Act he has to respond. 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.- decided in favour of assessee.

Issues Involved:
1. Validity of penalty order under section 271(1)(c) of the Income Tax Act.
2. Principles of natural justice and limitation period.
3. Voluntary disclosure of income by the assessee.
4. Specificity of the charge in the penalty notice.

Detailed Analysis:

1. Validity of Penalty Order under Section 271(1)(c):
The Revenue filed an appeal against the order of the Commissioner of Income-tax (Appeals)-28, Mumbai, which deleted the penalty levied under section 271(1)(c) of the Income Tax Act for the Assessment Year 2006-07. The penalty was initially imposed by the Assessing Officer (AO) on the grounds of concealing income or furnishing inaccurate particulars of income.

2. Principles of Natural Justice and Limitation Period:
The assessee contended that the show cause notice dated 15.09.2014 was never served, thereby violating the principles of natural justice. The penalty order dated 30.09.2014 was also alleged to be served late, on 31.10.2014, beyond the prescribed limitation period. The Commissioner of Income-tax (Appeals) [CIT(A)] found that there was no evidence to prove that the penalty order was issued within the limitation period. The CIT(A) relied on various case laws, including the Bombay High Court's judgment in Petlad Bulakhidas Mills Co. Ltd v. Raj Singh, which emphasized that an order must be beyond the control of the authority and issued within the limitation period to be effective.

3. Voluntary Disclosure of Income by the Assessee:
The assessee filed a revised return voluntarily on 31.10.2011, declaring additional income of ?5.40 Crores. The AO issued a notice under section 148 on 25.03.2013 to regularize this return, and the reassessment was completed on 07.03.2014, accepting the additional income without any further additions. The CIT(A) noted that there was no detection of concealed income by the Revenue, and the reopening of the assessment was merely to regularize the revised return. The CIT(A) concluded that the penalty was imposed without any credible satisfaction or enquiry, and the order was passed in undue haste.

4. Specificity of the Charge in the Penalty Notice:
The assessee argued that the penalty notice issued under section 274 read with section 271(1)(c) was vague as it did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. The CIT(A) and the Tribunal found that the AO's failure to strike off the irrelevant charge in the notice indicated non-application of mind. This was supported by the Supreme Court's decision in Dilip N. Shroff, which held that non-striking off irrelevant clauses in the penalty notice reflects a lack of clarity and application of mind by the AO.

Conclusion:
The Tribunal upheld the CIT(A)'s order, emphasizing that the penalty order was not only barred by limitation but also lacked merit as the additional income was voluntarily disclosed by the assessee. The Tribunal also noted that the penalty notice's vagueness and the AO's failure to specify the exact charge rendered the penalty proceedings invalid. Consequently, the appeal filed by the Revenue was dismissed.

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