2019 (5) TMI 777 - AT - Income Tax

Penalty u/s 271(1)(c) - non specific satisfaction recorded by AO - defective notice - HELD THAT - Penalty in dispute is not sustainable in the eyes of law, because the AO has not recorded any clear finding whether the assessee was guilty of concealment of income or furnishing of inaccurate particulars of income. Secondly, the notice u/s. 271(1)(c) has been issued to the assessee levying the penalty for furnishing of inaccurate particulars of income/concealment of income, whereas the penalty in dispute has been levied by the AO on account of furnishing of inaccurate particulars. See M/S MANJUNATHA COTTON AND GINNING FACTORY OTHS., M/S. V.S. LAD SONS, 2013 (7) TMI 620 - KARNATAKA HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.
2. Specificity of satisfaction recorded by the Assessing Officer (AO) in the penalty notice.
3. Consistency in penalty imposition for similar cases in previous years.
4. Legal grounds for cancellation of the penalty order.

Issue-wise Detailed Analysis:

1. Validity of Penalty Imposed Under Section 271(1)(c) of the Income Tax Act, 1961:
The Assessee challenged the penalty of ?1,48,329 imposed under Section 271(1)(c) of the Income Tax Act, 1961, arguing that the AO did not record proper satisfaction for the penalty. The Tribunal noted that the AO used a standard format for the penalty notice, merely ticking the option for "concealment of income or furnishing inaccurate particulars of such income" without specifying the exact nature of the violation. This lack of specificity was deemed contrary to the provisions of law, rendering the penalty unsustainable. The Tribunal referenced multiple case laws, including the Karnataka High Court's decision in CIT & Anr. Vs. M/s SSA’s Emerald Meadows and the Supreme Court's affirmation of the same, which held that a penalty notice must clearly specify the limb under which the penalty proceedings are initiated.

2. Specificity of Satisfaction Recorded by the Assessing Officer (AO) in the Penalty Notice:
The Tribunal emphasized that the AO's penalty notice and order lacked clear and specific allegations regarding whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income." The Tribunal cited the case of Ashok Kumar Chordia vs. DCIT, where the ITAT, New Delhi, held that such ambiguity in the penalty notice invalidates the penalty proceedings. The Tribunal reiterated that the AO's failure to specify the exact charge in the penalty notice contravenes legal requirements, thus invalidating the penalty.

3. Consistency in Penalty Imposition for Similar Cases in Previous Years:
The Assessee argued that in previous years, no penalty was initiated for similar ad-hoc disallowances by the AO, indicating inconsistency in the Department's approach. The Tribunal did not delve deeply into this argument, as the primary focus remained on the legality and specificity of the penalty notice and order.

4. Legal Grounds for Cancellation of the Penalty Order:
The Tribunal concluded that the penalty order was legally unsustainable due to the AO's failure to clearly specify the charge in the penalty notice. The Tribunal's decision was supported by various precedents, including the Karnataka High Court and Supreme Court rulings in the case of M/s SSA’s Emerald Meadows, which established that ambiguous penalty notices are invalid. Consequently, the Tribunal canceled the penalty order, rendering the other grounds raised by the Assessee academic and unnecessary for adjudication.

Conclusion:
The Tribunal allowed the Assessee's appeal, canceling the penalty order due to the AO's failure to specify the exact nature of the violation in the penalty notice, thus upholding the principles of natural justice and legal precedents. The decision was pronounced on 10/05/2019.