2019 (7) TMI 385 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice - non specification of charge - disallowance of the deduction claimed u/s 80IB(10) - HELD THAT - Addition made by the A.O. by disallowing the deduction claimed U/s 80IB(10) was allowed by the CIT(A) and further confirmed by the ITAT as well as the Hon ble Rajasthan High Court by dismissing the appeal filed by the department. From the record we found that the penalty order was passed by the A.O. on 31.03.2016, wherein penalty u/s 271(1)(c) is imposed on addition of income of ₹ 3,75,000/- on account of alleged cash amounting to ₹ 3,75,000/- received from one Sh Bimal Kumar Jain by holding that the assessee had furnished inaccurate particulars of income and concealed his income. Penalty proceedings have been initiated for concealment of particulars of income or for furnishing inaccurate particulars of income. Thereafter the penalty levied by holding that the assessee has furnished inaccurate particulars of income and concealed the income. As there is a variation in the reasons given for initiation of penalty is the show cause notice issued U/s 274 vis a vis reason given in the penalty order passed U/s 271(1)(c). For the reasons that now there is a settled legal position on the issue that the notice u/s 274 should be specific on imposing of penalty u/s 271(1) (c) i.e. concealed particulars of income or furnishing inaccurate particulars of income. See M/S SSA'S EMERALD MEADOWS 2016 (8) TMI 1145 - SC ORDER - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the penalty notice under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961.
2. Justification for penalty imposition on the addition of ?3,75,000/- under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Validity of the Penalty Notice:

The primary issue raised by the assessee was the validity of the penalty notice issued under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961. The assessee contended that the notice was "wrong and bad in law" because it did not specify whether the penalty proceedings were initiated for "concealment of income" or "furnishing of inaccurate particulars of income." The assessee argued that specifying the exact charge is essential for the imposition of penalty under Section 271(1)(c), as concealment of income and furnishing inaccurate particulars of income are distinct charges with different connotations.

The Tribunal noted that the Assessing Officer (A.O.) had issued a pre-printed notice without striking off the unnecessary portions, indicating non-application of mind. This lack of specificity in the notice was deemed improper and invalid, aligning with the decisions of higher courts such as the Karnataka High Court in CIT Vs. SSA's Emerald Meadows and Manjunatha Cotton & Ginning Factory. The Tribunal emphasized that the penalty notice must clearly state the specific charge to be valid.

2. Justification for Penalty Imposition:

The second issue was whether the penalty imposed on the addition of ?3,75,000/- was justified. The addition was made based on the statement of Shri Bimal Kumar Jain, who had surrendered the amount for tax purposes. However, the assessee denied receiving this amount, and the A.O. relied solely on oral testimony without additional material evidence.

The Tribunal observed that the A.O. did not initiate penalty proceedings specifically for the addition of ?3.75 lakhs in the assessment order. Instead, the penalty was initiated for disallowance of deduction claimed under Section 80IB(10), which was later allowed by the CIT(A) and confirmed by higher authorities, including the High Court. The penalty order passed by the A.O. on 31.03.2016, imposed penalty for furnishing inaccurate particulars of income and concealing income, but this was inconsistent with the initial reason for penalty initiation.

The Tribunal cited multiple judicial precedents, including the decisions of the Karnataka High Court and the Supreme Court, which held that a penalty notice must be specific about the charge. The Tribunal concluded that the penalty imposed was not sustainable due to the variation in the charge mentioned in the show cause notice and the penalty order. Consequently, the penalty of ?3,75,000/- was directed to be deleted.

Conclusion:

The Tribunal allowed the appeal of the assessee, ruling that the penalty notice was invalid due to lack of specificity and that the penalty imposed on the addition of ?3,75,000/- was not justified. The A.O. was directed to delete the penalty. The order was pronounced in the open court on 05th July, 2019.