2019 (12) TMI 262 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - AO has just ticked on the option of concealment of income or furnishing inaccurate particulars of such income - Held that - notice issued by the AO u/s. 271(1)(c) read with Section 274 of the Act is bad in law as it does not specify which limb of section 271(1) of the Act, the penalty proceedings had been initiated i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars. Therefore, the penalty in dispute is not sustainable in the eyes of law - Penalty deleted.

Summary

Issues Involved:
1. Validity of Penalty Order under Section 271(1)(c) of the Income Tax Act.
2. Adequate Opportunity of Hearing.
3. Justification of Penalty Imposition.

Detailed Analysis:

1. Validity of Penalty Order under Section 271(1)(c) of the Income Tax Act:
The primary issue revolves around the validity of the penalty order under Section 271(1)(c) of the Income Tax Act. The Assessee argued that the penalty order was invalid as the notice issued under Section 274 read with Section 271(1)(c) did not clearly specify whether the penalty proceedings were initiated for "furnishing of inaccurate particulars of income" or "concealment of income." The Assessee cited various judicial precedents, including ITAT, Delhi's decision in the case of ABR Auto Pvt. Ltd. vs. ACIT and the Hon’ble Karnataka High Court's decision in CIT & Ors. vs. M/s Manjunatha Cotton and Ginning Factory, to support their claim that such ambiguity renders the penalty order invalid.

The Department, on the other hand, contended that the penalty was specifically initiated for "concealment of income" as evidenced in the assessment order and penalty order. They argued that the non-striking of the correct limb in the notice was a mere procedural error that did not prejudice the Assessee, as the Assessee clearly understood the nature of the charges.

Upon reviewing the notice dated 28.12.2011, the Tribunal found that the AO had initiated the penalty for both "concealment of particulars of income" and "furnishing of inaccurate particulars," which is contrary to the law. The Tribunal held that the notice was bad in law as it did not specify the exact charge, thus making the penalty unsustainable. This view was supported by the decisions in CIT & Anr. vs. M/s SSA’s Emerald Meadows and the Hon’ble Supreme Court's affirmation of the same.

2. Adequate Opportunity of Hearing:
The Assessee argued that the Ld. CIT(A) erred in passing the appellate order without affording an adequate opportunity of being heard. The Tribunal noted that the principles of natural justice require that the Assessee be given a fair opportunity to present their case. The Department, however, maintained that the Assessee was given sufficient opportunity and that the procedural defects, if any, did not prejudice the Assessee.

The Tribunal emphasized that procedural rules are meant to advance the cause of justice and should not be used to deny justice. They cited the Hon’ble Madras High Court's decision in Sundaram Finance Ltd. vs. CIT, which held that procedural defects should not invalidate the proceedings unless they cause prejudice to the Assessee. The Tribunal concluded that the Assessee was not prejudiced by the procedural defects and had a fair opportunity to present their case.

3. Justification of Penalty Imposition:
The Assessee contended that the penalty of ?74,908/- imposed under Section 271(1)(c) was injudicious and unwarranted. The Department argued that the penalty was justified as the Assessee had concealed income by furnishing inaccurate particulars. The Tribunal reviewed the facts and found that the penalty was imposed without a clear finding of whether the Assessee was guilty of concealment of income or furnishing inaccurate particulars.

The Tribunal relied on several judicial precedents, including ITAT, 'A' Bench, New Delhi's decision in Ashok Kumar Chordia vs. DCIT, which held that a penalty order must clearly specify the charge against the Assessee. The Tribunal concluded that the penalty imposed was not sustainable in law due to the lack of clear findings and the ambiguity in the notice.

Conclusion:
The Tribunal allowed the Assessee's appeals, canceling the penalty orders for all the assessment years in question. The decisions were based on the principles of natural justice, procedural fairness, and the requirement for clear and specific charges in penalty notices. The Tribunal's order emphasized the importance of specifying the exact charge in penalty proceedings to ensure fairness and transparency.