2021 (2) TMI 1030 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - non specification of charge - deduction of long term capital gain in computing book profit u/s 115JB - difference in the computation of book profit under bonafide mistake was subsequently rectified the mistake by filing revised return - HELD THAT - Bare perusal of the notice issued u/s 274 read with section 271(1)(c) of the Act, extracted above, in order to initiate the penalty proceedings against the assessee goes to prove that the AO himself was not aware / sure as to whether he is issuing notice to initiate the penalty proceedings either for concealment of particulars of income or furnishing of inaccurate particulars of such income by the assessee rather issued vague and ambiguous notice by incorporating both the limbs of section 271(1)(c). When the charge is to be framed against any person so as to move the penal provisions against him/her, he/she is required to be specifically made aware of the charges to be leveled against him/her. Following the decisions rendered in the cases of CIT vs. Manjunatha Cotton and Ginning Factory, CIT vs. SSA s Emerala Meadows 2013 (7) TMI 620 - KARNATAKA HIGH COURT and Pr. CIT vs. Sahara India Life Insurance Company Ltd. 2013 (7) TMI 620 - KARNATAKA HIGH COURT we are of the considered view that when the notice issued by the AO is bad in law being vague and ambiguous having not specified under which limb of section 271(1)(c) of the Act the same has been issued, the penalty proceedings initiated u/s 271(1)(c) are not sustainable. Even otherwise, when the assessee has duly produced balance sheet and profit loss account before the AO during the assessment proceedings and the income computed in the profit loss account has been accepted and at the same time, it is nowhere the case of the Revenue that assessee has furnished false information or has not furnished necessary information. So, mere mistake, claimed to be inadvertent by the assessee, is not a concealment of income by furnishing of inaccurate particulars in the facts and circumstances of the case, when the assessee has filed revised computation of book profit claiming correct figures acceptable to the Revenue. So far as question of filing the revised return only after issuance of notice u/s 143 (2) of the Act to the assessee is concerned, it is again undisputed fact that with the notice u/s 143(2), no questionnaire was issued pointing out wrongly computing the book profit, leading to the reasonable inference that the mistake was inadvertent on the part of assessee. Thus initiating penalty u/s 271(1)(c) of the Act on the basis of vague and ambiguous notice issued u/s 143 (2) of the Act is not sustainable in the eyes of law and that mere difference in the computation of book profit under bonafide mistake is not furnishing of inaccurate particulars of income particularly when assessee had filed balance sheet, profit loss account showing all the capital gains and has subsequently rectified the mistake by filing revised return - Decided in favour of assessee.

Issues Involved:
1. Whether the Commissioner of Income-tax (Appeals) erred in upholding the penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Whether there is a disconnect between the penalty order and the appellate order.
3. Whether the error in computing book profit under section 115JB was inadvertent and rectified before assessment proceedings.
4. Whether the revised return filed after notice under section 143(2) was a bona fide and voluntary declaration.

Issue-wise Detailed Analysis:

1. Penalty under Section 271(1)(c):
The primary contention is whether the penalty under section 271(1)(c) was rightly upheld by the Commissioner of Income-tax (Appeals). The assessee argued that the penalty was unjust as the error in computing book profit under section 115JB was inadvertent and corrected before the assessment proceedings. The Tribunal noted that the assessee had disclosed all particulars relating to the sale of shares and long-term capital gains in the original return and that the revised return, which corrected the book profit, was filed after the issuance of notice under section 143(2). The Tribunal found that the Assessing Officer (AO) failed to specify whether the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of income," making the notice vague and ambiguous. Citing precedents from the Karnataka High Court and Delhi High Court, the Tribunal held that such a notice is bad in law, and thus, the penalty proceedings were not sustainable.

2. Disconnect Between Penalty Order and Appellate Order:
The assessee argued that there was a disconnect between the penalty order and the appellate order. The Tribunal observed that the AO did not specify the exact nature of the default in the show-cause notice, which is a prerequisite for imposing a penalty. The Tribunal emphasized that the charge must be clearly framed to inform the assessee of the specific allegations. The Tribunal agreed with the assessee that the penalty order was not aligned with the legal requirements, thereby supporting the claim of a disconnect.

3. Inadvertent Error in Computing Book Profit:
The assessee contended that the error in not including long-term capital gains in the book profit was inadvertent and rectified before the assessment proceedings were effectively taken up. The Tribunal acknowledged that the assessee had disclosed all relevant particulars in the original return and that the revised return was filed voluntarily to correct the mistake. The Tribunal noted that the AO did not issue a detailed questionnaire with the notice under section 143(2), indicating that the mistake was not detected by the Department but was voluntarily corrected by the assessee. The Tribunal found that the error was bona fide and not an attempt to conceal income or furnish inaccurate particulars.

4. Bona Fide and Voluntary Declaration:
The assessee argued that the revised return, which included the correct computation of book profit, was filed voluntarily and in good faith, even though it was after the issuance of notice under section 143(2). The Tribunal agreed, noting that the revised return was filed without any specific query from the AO regarding the computation of book profit. The Tribunal cited decisions from the coordinate Bench and the Hon’ble Rajasthan High Court, which supported the view that a bona fide mistake corrected voluntarily does not amount to furnishing inaccurate particulars of income. The Tribunal concluded that the revised return demonstrated the assessee's intention to comply with the law, and thus, the penalty was not warranted.

Conclusion:
The Tribunal held that the penalty under section 271(1)(c) was not sustainable due to the vague and ambiguous notice issued by the AO, the bona fide nature of the error, and the voluntary correction made by the assessee. Consequently, the appeal filed by the assessee was allowed, and the penalty levied by the AO and sustained by the Commissioner of Income-tax (Appeals) was ordered to be deleted. The Tribunal emphasized the importance of clear and specific charges in penalty proceedings and recognized the assessee's efforts to rectify the mistake voluntarily.

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