2020 (12) TMI 493 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice - in the show cause notice issued u/s 274 read with section 271(1)(c) has not struck off any of the twin charges - HELD THAT - AR has relied upon the decision of the Hon ble Delhi High Court in Pr. CIT Vs. Sahara India Life insurance Company Ltd 2019 (8) TMI 409 - DELHI HIGH COURT relying upon the decision of CIT Vs. Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT and CIT Vs. SSA s Emerald Meadows 2015 (11) TMI 1620 - KARNATAKA HIGH COURT that the notice issued by the ld AO for levy of the penalty would be bad in law if it did not specify which limb of section 271(1)(c) the penalty proceedings have been initiated. In the present case the notice issued by the ld AO section 271(1)(c) is silent. Even otherwise in the assessment order passed the ld AO was not clear whether the penalty was leviable for concealment of income or for furnishing inaccurate particulars of income. Thus, it was not discernable clearly in which limb the assessee was to be penalized. As in Virgo Marketing Pvt. Ltd 2008 (1) TMI 885 - DELHI HIGH COURT has held that if one is unable to discern from the reading of the assessment order why the ld AO choose to initiate penalty proceedings against the assessee and under which limb the penalty proceedings cannot be upheld. In view of the above facts and the binding judicial precedents of the Hon ble High Court we set aside the orders of the lower authorities and direct the ld AO to delete the penalty u/s 271(1)(c) - Decided in favour of assessee.

Summary

Issues:
1. Validity of penalty u/s 271(1)(c) for concealing income.
2. Admissibility of additional grounds challenging penalty orders.

Issue 1: Validity of penalty u/s 271(1)(c) for concealing income:
The appeal was against the confirmation of a penalty u/s 271(1)(c) for concealing income. The assessee had surrendered a substantial amount during a search operation and assessment proceedings, leading to the addition of a specific sum to the taxable income. The Assessing Officer (AO) initiated penalty proceedings, alleging concealment of income. The assessee did not prefer further appeal, leading to the confirmation of the penalty by the Commissioner of Income Tax Appeal-3. The assessee contended that the addition was accepted to avoid litigation, and no documentary evidence was found during the search. However, the AO maintained that the income was concealed, resulting in the penalty imposition. The ITAT noted that the AO did not specify the exact reason for the penalty in the assessment order or the notice issued, which was crucial for determining the validity of the penalty. Citing legal precedents, the ITAT concluded that the lack of clarity regarding the grounds for penalty rendered the penalty order unsustainable. Consequently, the ITAT directed the AO to delete the penalty under section 271(1)(c).

Issue 2: Admissibility of additional grounds challenging penalty orders:
During the appeal, the assessee raised additional grounds challenging the penalty orders. The assessee argued that the AO did not record satisfaction in the assessment order and that the notice issued was defective, thus seeking the cancellation of the penalty orders. The Department objected to the admission of these additional grounds, claiming they were not raised before the lower authorities. The ITAT, however, admitted the additional grounds, considering them as legal issues challenging the validity of the penalty itself. The ITAT further analyzed the contentions and legal aspects raised by the assessee, ultimately leading to the decision to allow the appeal and direct the deletion of the penalty under section 271(1)(c) of the Income Tax Act.

In conclusion, the ITAT allowed the appeal, emphasizing the importance of clearly specifying the grounds for penalty imposition and addressing legal challenges to ensure the validity of penalty orders under section 271(1)(c) of the Income Tax Act.