2022 (5) TMI 1003 - AT - Income Tax

Penalty u/s.271(1)(c) - defective notice u/s 274 - non specification of clear charge -failure to frame specific charge against the assessee during penalty proceedings - As argued appellant has neither furnished inaccurate particulars of income nor has concealed the particulars of income warranting levy of penalty - addition u/s 68 - HELD THAT - As relying on MANJUNATHA COTTON AND GINNING FACTORY, MANJUNATH GINNING AND PRESSING, VEERABHADRAPPA SANGAPPA AND CO., V.S. LAD AND SONS, G.M. EXPORT 2013 (7) TMI 620 - KARNATAKA HIGH COURT , M/S SSA'S EMERALD MEADOWS 2016 (8) TMI 1145 - SC ORDER and MR. MOHD. FARHAN A. SHAIKH 2021 (3) TMI 608 - BOMBAY HIGH COURT since no specific charge was framed either in the show-cause notice or in the body of penalty order and there was failure on the part of Ld. AO to frame specific charge against the assessee, the penalty would not be sustainable in the eyes of law. By deleting the impugned penalty, we allow the appeal.

Summary

Issues Involved:
1. Legality of the penalty under Section 271(1)(c) of the Income Tax Act.
2. Specificity of the charge in the penalty notice.
3. Distinction between assessment and penalty proceedings.
4. Requirement of mens rea for penalty under Section 271(1)(c).
5. Validity of penalty proceedings based on non-production of details.
6. Judicial discretion in imposing penalties.
7. Consideration of bona fide explanation by the assessee.

Issue-wise Detailed Analysis:

1. Legality of the penalty under Section 271(1)(c) of the Income Tax Act:
The appeals arose from the common order confirming the penalty under Section 271(1)(c) for AY 1998-99 to 2005-06. The penalty was levied due to the addition of unexplained cash deposits in the assessee's bank account. The assessee argued that the penalty was not justified as the additions were confirmed only due to non-production of certain details.

2. Specificity of the charge in the penalty notice:
The penalty notice under Section 274 read with Section 271(1)(c) did not specify whether the penalty was for "furnishing inaccurate particulars of income" or "concealment of income." The Tribunal found that the failure to frame a specific charge vitiated the penalty proceedings. The notice was deemed vague and indicative of non-application of mind, thus invalidating the penalty.

3. Distinction between assessment and penalty proceedings:
The assessee contended that penalty proceedings are independent of assessment proceedings. The Tribunal upheld this view, noting that penalty does not automatically follow from quantum additions. The penalty must be based on specific findings of concealment or furnishing inaccurate particulars, which were not established in this case.

4. Requirement of mens rea for penalty under Section 271(1)(c):
The Tribunal reiterated that penalty under Section 271(1)(c) is a civil liability and does not require mens rea. However, it emphasized that the penalty must be based on clear findings of concealment or inaccurate particulars, which were absent in this case.

5. Validity of penalty proceedings based on non-production of details:
The assessee argued that the penalty was levied solely due to non-production of certain details, which does not justify the imposition of penalty. The Tribunal agreed, stating that the mere inability to produce details does not constitute concealment or furnishing inaccurate particulars.

6. Judicial discretion in imposing penalties:
The Tribunal noted that the discretion to impose a penalty must be exercised judicially. Penalty should be imposed only in cases of deliberate defiance of law, contumacious or dishonest conduct, or conscious disregard of obligations. The assessee's case did not meet these criteria.

7. Consideration of bona fide explanation by the assessee:
The Tribunal emphasized that the bona fide explanation of the assessee must be considered. The penalty cannot be justified merely because the assessment proceedings were confirmed. In this case, the assessee's explanation was not properly considered, leading to an unjust imposition of penalty.

Conclusion:
The Tribunal allowed the appeals, deleting the penalties for all the assessment years involved. The penalty notices and orders were found to be defective due to the lack of specific charges, and the penalty proceedings were deemed invalid. The Tribunal emphasized the need for specific findings of concealment or inaccurate particulars and the judicial exercise of discretion in imposing penalties.