2018 (11) TMI 692 - AT - Income Tax

Penalty u/s.271(1)(c) - wrong claim of deduction u/s.80IA(4)(iv)(a) - Held that - As evident that at the time of initiation of penalty proceedings in the assessment, AO held that penalty u/s.271(1)(c) is initiated for making wrong claim of deduction u/s.80IA(4)(iv)(a). But at the time of levying penalty qua in penalty order, AO held that the assessee has committed a default within the meaning of Explanation-1(B) to Section 271(1)(c) by furnishing inaccurate particulars of income by claiming wrong deduction of ₹ 64,88,107/-. Thus, this manner of recording of satisfaction suggests the existence of ambiguity with reference to applicability of specific limb. Therefore, we are of the opinion that considering the above referred binding judgments such penalty order is unsustainable in law legally. AO is under obligation to specify the correct limb at the time of initiation as well as at the time of levy of penalty. In view of the above deliberation on this issue, we are of the opinion that the penalty order is liable to be quashed on this legal issue. Thus, the order of CIT(A) is set-aside and direct the AO to delete the penalty. Accordingly, the legal grounds of appeal raised by the assessee are allowed on technicalities. In view of the same, we find, adjudication of the merits of penalty, become an academic exercise. Hence, merits-linked grounds are dismissed as such.

Summary

Issues:
1. Penalty imposition under Sec.271(1)(c) for inaccurate income particulars and wrong deduction claim for A.Y. 2005-06.
2. Penalty imposition under Sec.271(1)(c) for concealment of income and inaccurate particulars for A.Y. 2006-07.

Detailed Analysis:

Issue 1:
The appellant challenged the penalty imposed under Sec.271(1)(c) for A.Y. 2005-06 due to wrong deduction claim of &8377; 64,88,107 under Sec.80IA(4)(iv)(a). The Assessing Officer (AO) initiated penalty proceedings based on this claim. However, during the penalty order, the AO cited furnishing inaccurate income particulars as the reason. The Tribunal noted this ambiguity and emphasized the necessity for the AO to specify the correct limb under Sec.271(1)(c) at both initiation and levy of penalty. Citing relevant judgments, the Tribunal deemed the penalty order legally unsustainable due to the lack of clarity in specifying the violation. Consequently, the penalty was quashed, and the appeal was partly allowed.

Issue 2:
For A.Y. 2006-07, the appellant contested the penalty imposed under Sec.271(1)(c) for concealing income and furnishing inaccurate particulars. The AO initiated separate penalty proceedings for treating certain profits as business income instead of capital gains. However, the penalty order cited furnishing inaccurate particulars as the reason for penalty imposition. Similar to the previous issue, the Tribunal found an inconsistency in specifying the violation under Sec.271(1)(c) at different stages. Relying on previous judgments, the Tribunal directed the AO to delete the penalty due to the lack of clarity in the penalty imposition process. Consequently, the appeal for A.Y. 2006-07 was also partly allowed.

In both cases, the Tribunal emphasized the importance of the AO correctly specifying the grounds for penalty under Sec.271(1)(c) to ensure legal validity and clarity in penalty imposition. The judgments highlighted the need for consistency in identifying the exact violation to justify penalty imposition, ultimately leading to the partial allowance of the appeals for both assessment years.