2022 (4) TMI 18 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - Defective Notice u/s 274 - Non specification of charge - HELD THAT - In assessment proceedings under Section 143(3) of the Act has though initiated penalty has not given any specific satisfaction as to how the penalty should be imposed as well as no specific charge was mentioned in the original assessment order. The notice u/s 271(1)(c) read with Section 274 of the Act dated 26.12.2016 also does not mention exactly as to which charge of the levy of penalty should be taken into account in assessee s case. The penalty order is also not revealing under which charge the Ao has levied penalty - AO has simply made observation hat the assessee evaded the income details and thereby concealed the particulars of income or furnished inaccurate particulars. But the intention of the provision of Section 271(1)(c) has given a mechanism as to on which specific limb penalty has to be levied. If the assessee furnished inaccurate particulars then the penalty proceedings will be separate and the reasoning will be separate to that extent. If the assessee has concealed the particulars of income, the reasoning has to be given by the AO to that extent. If both the limbs has been observed or identified in any particular assessee s case then for both the limbs the AO has to give the reason either in assessment order or in penalty order itself, but that is a lacuna in the present penalty order under challenge. Therefore, on this ground the penalty does not sustain. Admittedly, in assessment order, in the penalty order and before the CIT(A), the CIT(A) also undisputedly quoted that the assessee offered profit at 1.1% in his return of income. Thus, the assessee has given full disclosure in his return of income itself and that cannot be held as inaccurate particulars of income or concealing of the income. Thus, Section 271(1)(c) of the Act does not apply in the present case. -Decided in favour of assessee.

Summary

Issues:
- Levy of penalty without specific charge
- Validity of penalty under Section 271(1)(c) of the Income Tax Act, 1961
- Assessment of penalty by the CIT(A) based on inaccurate particulars of income

Analysis:
1. Levy of Penalty without Specific Charge:
The appellant challenged the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, contending that there was no specific charge mentioned at the initiation of the penalty proceedings. The Assessing Officer initiated penalty without specifying the grounds for imposing the penalty, which was further supported by the absence of a specific charge in the notice under Section 271(1)(c) read with Section 274 of the Act. The penalty order also lacked clarity regarding the specific charge under which the penalty was levied. The Tribunal highlighted that for the penalty to be valid, the Assessing Officer must provide a clear basis for imposing the penalty, either for inaccurate particulars of income or for concealing income. As the penalty order failed to specify the exact charge for the penalty, the Tribunal held that the penalty could not be sustained on this ground.

2. Validity of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The appellant argued that the addition made by the Assessing Officer was purely on an estimate basis and did not constitute furnishing inaccurate particulars of income or concealing income. The CIT(A), however, upheld the penalty, stating that the appellant had filed inaccurate particulars of income by concealing income. The Tribunal observed that the appellant had disclosed profit at 1.1% in the return of income, and the difference of 0.65% was treated as income by the Assessing Officer. The Tribunal concluded that since the appellant had made a full disclosure in the return of income, it could not be considered as furnishing inaccurate particulars of income or concealing income. Therefore, Section 271(1)(c) of the Act was deemed inapplicable in this case, and the Tribunal allowed the appeal of the assessee.

3. Assessment of Penalty by the CIT(A) based on Inaccurate Particulars of Income:
The CIT(A) upheld the penalty by asserting that the appellant had filed inaccurate particulars of income, leading to the concealment of income. However, the Tribunal noted that the appellant's disclosure of profit at 1.1% in the return of income constituted a full disclosure, which did not amount to furnishing inaccurate particulars of income or concealing income. By offering a detailed analysis of the appellant's disclosure and the Assessing Officer's treatment of the difference in profit percentage, the Tribunal concluded that the penalty imposed by the CIT(A) was unjustified. Consequently, the Tribunal allowed the appeal of the assessee, ruling in favor of the appellant.

In conclusion, the Tribunal set aside the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, due to the absence of a specific charge and the appellant's full disclosure in the return of income, which did not constitute inaccurate particulars of income or concealment of income.