2019 (4) TMI 831 - AT - Income Tax

Penalty u/s 271(1)(c) - non specification of charge - defective notice - income from unexplained sources - HELD THAT - Bare perusal of the notice issued u/s 27I(1)(c) apparently goes to prove that the Assessing Officer initiated the penalty proceedings by issuing the notice u/s 274/271(1)(c) of the Act without specifying whether the assessee has concealed particulars of income or assessee has furnished inaccurate particulars of income , so as to provide adequate opportunity to the assessee to explain the show cause notice. Rather notice in this case has been issued in a stereotyped manner without applying any mind which is bad in law, hence is not a valid notice sufficient to impose penalty u/s 271(1)(c) of the Act. Also as imperative for the Assessing Officer to strike- off the irrelevant limb so as to make the assessee aware as to what is the charge made against him so that he can respond accordingly. The Hon ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT observed that the levy of penalty has to be clear as to the limb under which it is being levied - where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. Where the Assessing Officer issues notice under section 274 of the Act in the standard proforma and the inappropriate words are not deleted, the same would postulate that the Assessing Officer was not sure as to whether he was to proceed on the basis that the assessee had concealed the particulars of his income or furnished inaccurate particulars of income. According to the Hon ble Supreme Court, in such a situation, levy of penalty suffers from non- application of mind. See DILIP N. SHROFF VERSUS JOINT COMMISSIONER OF INCOME-TAX AND ANOTHER 2007 (5) TMI 198 - SUPREME COURT - Decided in favour of assessee

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act.

Analysis:
The appeal was filed against the order of the Ld. CIT(Appeals)-2, Gurgaon confirming the levy of penalty of ?1,20,010 by the Assessing Officer under section 271(1)(c) of the Act. The Assessing Officer had completed the assessment for the relevant year by making an addition to the income of the assessee from unexplained sources. The penalty was imposed for concealment of income. The primary contention raised was regarding the ambiguity in the penalty notice issued by the Assessing Officer, as it did not explicitly specify whether the penalty proceedings were initiated for furnishing inaccurate particulars or for concealment of income. The Authorized Representative of the assessee relied on a Supreme Court judgment to argue that such ambiguity makes the penalty order liable for cancellation. On the other hand, the Departmental Representative cited various case laws to support the justification for penalty proceedings in cases of ex-facie bogus claims in the return of income.

The Tribunal examined the facts and found that the penalty imposed by the Assessing Officer was not in dispute. The Authorized Representative highlighted a Supreme Court judgment where it was held that the omission to specify the nature of penalty proceedings in the notice makes the penalty order liable for cancellation. The Tribunal also referred to a judgment of the High Court of Karnataka where a similar issue was decided in favor of the assessee. The Tribunal concluded that the notice issued by the Assessing Officer did not specify the limb of section 271(1)(c) under which the penalty proceedings were initiated, making it bad in law and invalid for imposing the penalty.

The Tribunal emphasized the importance of clarity in penalty notices under section 271(1)(c) of the Act, stating that the two limbs of the provision, i.e., concealment of income and furnishing inaccurate particulars of income, carry different meanings. It was noted that the Assessing Officer must clearly indicate the specific limb under which the penalty is being levied to provide the assessee with a fair opportunity to respond. Citing legal precedents, including judgments of the Karnataka High Court and the Supreme Court, it was highlighted that a notice with irrelevant clauses or without specifying the relevant limb indicates a lack of application of mind by the Assessing Officer. In line with the legal principles established in previous cases, the Tribunal canceled the penalty imposed by the Assessing Officer and allowed the appeal of the assessee.

In conclusion, the Tribunal, following legal precedents and the principles of clarity in penalty proceedings, canceled the penalty imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act. The appeal filed by the assessee was allowed, and the penalty order was set aside.