2020 (3) TMI 599 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice - non specification of charge - HELD THE - Assessing Officer did not specify under which limb of the provision he has initiated the proceedings. Moreover, the penal proceedings are separate from assessment proceedings and while initiating penalty proceedings u/s 271(1)(c) of the Act, it is incumbent upon the Assessing Officer to demonstrate under which limb he is proposing levy of penalty. See M/S. SAHARA INDIA LIFE INSURANCE COMPANY, LTD. and M/S SSA'S EMERALD MEADOWS 2016 (8) TMI 1145 - SC ORDER 2019 (8) TMI 409 - DELHI HIGH COURT Notice issued by the Assessing Officer u/s 274 r.w.s 271(1)(c) of the Act to be bad in law as it did not specify which limb of section 271(1)(c) of the Act the penalty proceedings had been initiated i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The issue was decided in favour of the assessee.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961 based on assessment order disallowances and subsequent appeal challenging the penalty.

Analysis:
The appeal was filed against the penalty levied by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961. The penalty proceedings were initiated based on the assessment order dated 18.03.2013, which had assessed the returned loss of ?66.92 lakhs as a profit of ?12.57 lakhs after disallowances. The additions made during assessment included amounts related to share capital, unsecured loans, and expenses. The Commissioner of Income Tax (Appeals) partially allowed the appeal, reducing the additions. The penalty was imposed after these adjustments, and the matter was taken to the ITAT.

During the penalty proceedings, it was noted that the notice issued to the assessee did not specify under which limb of section 271(1)(c) the penalty was being initiated. Citing legal precedents, it was emphasized that the Assessing Officer must clearly indicate the basis for initiating penalty proceedings, whether for concealment of income particulars or furnishing inaccurate particulars. Failure to specify this renders the penalty proceedings invalid.

Referring to decisions by the Hon'ble High Court of Delhi and the Hon'ble Supreme Court, it was highlighted that the lack of clarity in the notice regarding the specific limb of section 271(1)(c) under which the penalty was imposed renders the penalty unsustainable. The judgments emphasized the importance of clearly specifying the grounds for penalty initiation in the notice served to the assessee.

In light of the legal precedents and the lack of specificity in the notice issued in this case, the Tribunal set aside the findings of the CIT(A) and directed the Assessing Officer to delete the penalty amount of ?5,36,115. Consequently, the appeal filed by the assessee was allowed, and the penalty was revoked.

The judgment was pronounced in open court on 12.03.2020, with the Tribunal ruling in favor of the assessee based on the legal principles outlined in the precedents cited during the proceedings.