2020 (2) TMI 983 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice u/s 274 r.w.s 271(1) (c) - difference in recording of satisfaction/mentioning of reasons for initiation of penalty proceedings and imposition of penalty finally - HELD THAT - Penalty provisions of section 271(1)(c) of the Act are attracted where the assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is also a well-accepted proposition that the aforesaid two limbs of section 271(1)(c) of the Act carry different meanings. Therefore, it is 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. 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. As per Hon'ble High Court, where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. Hon'ble Supreme Court in the case of Dilip N. Shroff vs. JCIT 2007 (5) TMI 198 - SUPREME COURT has also noticed that 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. Having regard to the manner in which the Assessing Officer has issued notice under section 274 r.w.s. 271(1)(c) of the Act dated 27.03.2015 without striking off the irrelevant words, 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 mind which is bad in law, hence can not be considered a valid notice sufficient to impose penalty u/s 271(1)(c) of the Act. Thus the penalty is not leviable - Decided in favour of assessee.

Issues Involved:
1. Affirmation of penalty levied by the Assessing Officer.
2. Validity of notice issued under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961.
3. Requirement of specifying the exact charge in the penalty notice.
4. Principles of natural justice and reasonable opportunity of being heard.

Detailed Analysis:

1. Affirmation of Penalty Levied by the Assessing Officer:
The assessees challenged the affirmation of penalties levied by the Assessing Officer (AO) for furnishing inaccurate particulars of income and concealment of income. The penalties were imposed based on discrepancies found during a search operation and subsequent assessment proceedings. The AO initiated penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961, for the amounts voluntarily offered by the assessees in revised returns.

2. Validity of Notice Issued Under Section 274 Read with Section 271(1)(c):
The assessees argued that the penalty notices issued under Section 274 were defective as they did not specify the exact charge—whether for concealment of income or for furnishing inaccurate particulars of income. The Tribunal examined whether the issuance of a vague notice could vitiate the penalty proceedings. The Tribunal referred to various judgments, including the Karnataka High Court's decision in CIT vs. Manjunatha Cotton and Ginning Factory and CIT vs. SSA’s Emerald Meadows, which held that a notice must clearly state the specific charge to satisfy the principles of natural justice.

3. Requirement of Specifying the Exact Charge in the Penalty Notice:
The Tribunal emphasized that specifying the exact charge in the penalty notice is crucial for providing a reasonable opportunity of being heard to the assessee. The use of a standard proforma without striking off irrelevant clauses indicated non-application of mind by the AO. The Tribunal held that such a notice is invalid as it fails to inform the assessee of the specific charge, thus violating the principles of natural justice.

4. Principles of Natural Justice and Reasonable Opportunity of Being Heard:
The Tribunal reiterated that the principles of natural justice require that the assessee be given a clear and specific charge to respond to. The Tribunal cited the Supreme Court's decisions in Dilip N. Shroff vs. JCIT and Ashok Pai vs. CIT, which differentiated between concealment of income and furnishing inaccurate particulars. The Tribunal concluded that the AO's failure to specify the charge in the notice and the subsequent imposition of penalty on one limb while initiating proceedings on both limbs indicated a lack of clarity and certainty, thereby vitiating the penalty proceedings.

Conclusion:
The Tribunal allowed the appeals filed by the assessees, holding that the penalty notices were invalid due to the failure to specify the exact charge. Consequently, the penalties levied by the AO and affirmed by the CIT(A) were deleted. The Tribunal emphasized the necessity of clear and specific charges in penalty notices to uphold the principles of natural justice and provide a reasonable opportunity of being heard to the assessee. The order pronounced that all appeals under consideration filed by the assessees stand allowed.

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