2022 (9) TMI 27 - AT - Income Tax

Penalty u/s. 271(1)(c) - Defective notice u/s 274 - non specification of charge - HELD THAT - AO had though observed that there is concealment of income and accordingly Assessee company is liable for penalty proceeding u/s. 271(1)(c) of the Act. However, when the notice was issued on 27.03.2015 there was no specific indication of the limb of the default. Further during the penalty proceeding while making the conclusion the AO observed in view of the above discussions and decided case laws, I hold that the Assessee had concealed/furnished inaccurate particulars of its income and is liable for imposition of penalty u/s. 271(1)(c) of the Act as follows . Thus, inspite of giving observation in the assessment order that there is concealment of income. Notice issued and the penalty order makes it ambiguous as to under which limb, the penalty order has been passed. Para 7 of the order of Ld. FAA shows that this argument was specially raised and relevant precedents were cited but Ld. CIT(A) has failed to make any discussion on this aspect - Following the settled proposition of law recognized in Pr. CIT Vs. Sahara Life Insurance Company Ltd. 2019 (8) TMI 409 - DELHI HIGH COURT that where there is failure on the part of the AO to indicate and specify under which limb of section 271(1)(c) penalty proceedings has been initiated, the penalty order cannot be sustained. The ground No. 1 stands allowed and as very exercise of jurisdiction becomes vitiated. Appeal of assessee allowed.

Summary

Issues:
1. Validity of penalty order under section 271(1)(c) of the Income Tax Act, 1961.
2. Distinction between concealment of income and furnishing inaccurate particulars of income.
3. Imposition of penalty based on estimation of income.
4. Ambiguity in penalty proceedings notice.

Issue 1: Validity of penalty order under section 271(1)(c) of the Income Tax Act, 1961:
The appellant company filed an appeal against the penalty order dated 26.03.2018 passed under section 271(1)(c) of the Act. The Ld. AO imposed a penalty of Rs. 14,35,681, which was sustained by the Ld. CIT(A). The Assessee challenged the penalty order before the Tribunal, arguing that the penalty proceeding notice issued did not specify if the penalty was for concealment of income or furnishing inaccurate particulars of income. The Tribunal observed that the notice and penalty order were ambiguous regarding the basis for the penalty imposition. Citing the judgment in Pr. CIT Vs. Sahara Life Insurance Company Ltd., the Tribunal held that failure to specify the basis for penalty initiation renders the penalty order unsustainable. Therefore, the Tribunal set aside the penalty order.

Issue 2: Distinction between concealment of income and furnishing inaccurate particulars of income:
The Assessee contended that the penalty order did not distinguish between concealment of income and furnishing inaccurate particulars of income. The Assessee relied on the judgment in Manjunatha Cotton and Ginning Factory case and argued that the penalty notices were not in conformity with the law. Additionally, the Assessee argued that as the assessment was based on an estimate of profits, there could be no case of concealment of income or inaccurate particulars. However, the Ld. SR. DR defended the orders of the tax authorities, stating that concealment of income was observed in the assessment order and penalty order. The Tribunal noted the lack of distinction in the penalty proceedings and held that the penalty order was unsustainable due to ambiguity in specifying the basis for penalty imposition.

Issue 3: Imposition of penalty based on estimation of income:
The Assessee raised concerns regarding the imposition of the penalty based on the estimation of income. The Assessee argued that the penalty should not be imposed when income is assessed on an estimation basis. The Tribunal noted that the CIT(A) had restricted the additions made by the AO in the assessment order and re-estimated the income using different tools. The Tribunal found that the penalty imposition should be based on each tool adopted by the CIT(A) for the amount of addition confirmed, rather than the total amount confirmed in the quantum of appeal. However, the Tribunal did not delve into the merits of this argument as the penalty order was set aside due to the ambiguity in the penalty proceedings notice.

Issue 4: Ambiguity in penalty proceedings notice:
The Tribunal highlighted the ambiguity in the penalty proceedings notice issued under section 271(1)(c) of the Act. While the assessment order indicated concealment of income, the notice and penalty order did not specifically mention under which limb of the section the penalty proceedings were initiated. Citing the judgment in Pr. CIT Vs. Sahara Life Insurance Company Ltd., the Tribunal emphasized that such ambiguity renders the penalty order unsustainable. The Tribunal allowed the appeal and set aside the penalty order due to the defective penalty proceedings notice.

In conclusion, the Tribunal allowed the appeal, setting aside the penalty order due to the ambiguity in the penalty proceedings notice regarding the basis for penalty imposition. The Tribunal emphasized the importance of clearly specifying the grounds for penalty initiation under section 271(1)(c) of the Income Tax Act, 1961 to ensure the validity of the penalty order.