2019 (4) TMI 205 - AT - Income Tax

Penalty u/s 271(1)(c) - Non specification of charge - not specially pointing out that whether the penalty was proposed on concealment of particulars of income, or for furnishing particulars of income - HELD THAT - Perusal of the notice issued u/s 274 read with section 271(1)(c) in order to initiate the penalty proceedings against the assessee goes to prove that even at the stage of issuing the notice, AO 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 into motion against him, he/she should be specifically made aware of the charges to be leveled against him/her. In the instant case, not only the notice issued to the assessee u/s 274 r.w.s. 271(1)(c) is defective but AO has not even made himself satisfied at the time of making disallowance / addition in assessment order if the assessee has furnished inaccurate particulars of income or has concealed particulars of his income rather to be on the safer side he has invoked both the limbs of section 271(1) of the Act. So, we are of the considered view that this is not merely a case of serving a defective notice under section 274 r.w.s. 271(1) on the assessee rather it is a case of non-application of mind on the part of the AO to make himself satisfied as to under which limb of section 271(1)(c) he is going to initiate/levy the penalty on the assessee. Penalty under section 271(1)(c) cannot be levied merely on the basis of fact that in the penalty order, the AO has rightly levied the penalty for furnishing inaccurate particulars of income because when very initiation of the penalty proceedings are vitiated, as discussed in the preceding paras, the penalty order is not sustainable. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the penalty order under section 271(1)(c) of the Income-tax Act, 1961.
2. Whether the Assessing Officer (AO) properly satisfied himself if the assessee concealed particulars of income or furnished inaccurate particulars.
3. Whether the notice issued under section 274 read with section 271(1)(c) was specific and clear.

Detailed Analysis:

1. Validity of the Penalty Order under Section 271(1)(c):
The appellant, M/s. Moving Picture Company India Ltd., challenged the penalty order dated 25.03.2013, confirmed by the Commissioner of Income-tax (Appeals)-6, Delhi, which imposed a penalty of ?12,22,662/- for the assessment year 2008-09. The penalty was based on the assessment under section 143(3), where the AO made additions to the returned loss of ?1,48,65,293/-, reducing it by ?41,14,190/-. The AO initiated penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income.

2. Satisfaction of the AO Regarding Concealment or Inaccurate Particulars:
The Tribunal noted that the AO, at the time of framing the assessment order, did not clearly satisfy himself whether the assessee had concealed particulars of income or furnished inaccurate particulars. The assessment order stated, "I am fully satisfied that the additions as above amount to filing of inaccurate particulars and concealment of income by the assessee and deserve penalty u/s 271(1)(c)." This ambiguity persisted in the notice issued under section 274 read with section 271(1)(c), where both grounds were mentioned without specifying the exact charge.

3. Specificity and Clarity of the Notice Issued:
The Tribunal emphasized that the notice issued under section 274 read with section 271(1)(c) was vague and ambiguous, failing to specify whether the penalty was for concealment of income or furnishing inaccurate particulars. This lack of specificity violated principles of natural justice, as the assessee was not clearly informed of the charges. The Tribunal relied on the Karnataka High Court's decision in CIT vs. Manjunatha Cotton and Ginning Factory, which held that a vague notice under section 274 read with section 271(1)(c) is not sustainable. The Supreme Court in CIT vs. SSA’s Emerala Meadows also upheld this principle, stating that such notices must clearly specify the charge.

Conclusion:
The Tribunal concluded that the penalty order was invalid due to the AO's failure to specify the exact charge in the notice and his lack of clear satisfaction regarding the nature of the assessee's default. The penalty proceedings were vitiated by non-application of mind and failure to adhere to legal requirements. Consequently, the appeal filed by the assessee was allowed, and the penalty order was set aside.

Order Pronounced:
The order was pronounced in open court on March 29, 2019.