2019 (7) TMI 1364 - AT - Income Tax

Penalty u/s 271(1)(c) - non specification of charge - HELD THAT - Bare perusal of the assessment order dated 28-03-2014, whereby the penalty proceedings have been imitated and notice dated 28-03-2014 issued u/s 274 apparently goes to prove that the AO initiated the penalty proceedings in the assessment order and issued the notice u/s 274/271(1)(c) without specifying whether the assessee has concealed '' the particulars of income or the assessee has furnished the 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). Further the assessing officer while imposing the penalty also, used both the limbs by mentioning oblique such as concealment of particulars of income/furnishing the particular of income , therefore it goes to prove that even the mind of the AO, while recording the satisfaction in Assessment Order, issuing the notice dated 28-03-2014 u/s 274 and while imposing the penalty as well, was indecisive and unclear under which limb, the penalty proceedings have to be initiated and under which limb the assessee had to reply in order to defend its case and under which limb the penalty warranted and supposed to be levied, therefore we are of the view that under these facts and circumstance, the penalty is not leviable as held by the various Courts including the Apex Court, hence, we have no hesitation to delete the penalty levied by the AO and affirmed by the CIT (A). - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Legal validity of the penalty notice and order under Section 274 read with Section 271(1)(c).
3. Adequacy of the Assessing Officer's satisfaction and clarity in specifying the limb of the penalty.

Detailed Analysis:

1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The appeal was filed by the assessee against the order confirming the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, for furnishing inaccurate particulars of income/concealment of particulars of income. The penalty was initially imposed by the Assessing Officer (AO) and later affirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee contended that the penalty was wrongly confirmed as the AO had only enhanced the book profits during the assessment proceedings, and no additions were made under the normal provisions of the Act. The assessee also argued that there was no wilful concealment or furnishing of inaccurate particulars but rather a bona fide omission.

2. Legal validity of the penalty notice and order under Section 274 read with Section 271(1)(c):
The assessee challenged the validity of the penalty notice and order, arguing that the AO was not clear whether the penalty was for furnishing inaccurate particulars of income or for concealment of income. The AO initiated penalty proceedings under both limbs—concealment of income and furnishing inaccurate particulars—without specifying which limb was applicable. The Tribunal referred to precedents, including the Karnataka High Court's decision in 'Manjunatha Cotton and Ginning Factory' and the Supreme Court's decision in 'SSA's Emerald Meadows', which held that the penalty notice must clearly specify the charge against the assessee. The Tribunal found that the AO's failure to specify the limb under which the penalty was imposed rendered the notice and penalty order invalid.

3. Adequacy of the Assessing Officer's satisfaction and clarity in specifying the limb of the penalty:
The Tribunal observed that the AO, while initiating penalty proceedings, issuing the notice, and imposing the penalty, did not clearly specify whether the penalty was for concealment of income or furnishing inaccurate particulars of income. This lack of clarity indicated non-application of mind by the AO. The Tribunal cited the Supreme Court's decision in 'Dilip N. Shroff vs. JCIT', which emphasized that the AO must be clear about the charge against the assessee to allow for an adequate defense. The Tribunal concluded that the penalty proceedings were initiated and the penalty imposed without proper satisfaction and clarity, making the penalty order unsustainable.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, quashing the penalty order on the grounds of legal invalidity due to the AO's failure to specify the limb of the penalty. The Tribunal did not find it necessary to delve into the merits of the case, as the appeal was decided on the legal ground. The penalty levied by the AO and affirmed by the CIT(A) was deleted.

Order Pronounced:
The appeal filed by the assessee stands allowed, and the penalty order is quashed. The decision was pronounced in open court on 22.07.2019.