2022 (10) TMI 30 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - Valid notice u/s 274 - non specification of charge - Non independent application of mind by AO - HELD THAT - In the instant case, the AO initiated the penalty under section 271(1)(c) of the Act for concealment of income and furnishing inaccurate particulars of Incomeand thereafter issued the notice u/s 274 r.w.s. 271(1)(C) of Act for concealment of the particulars of income or filling of inaccurate particulars of income but without specifying any particular limb and finally vide penalty order dated 23.09.2015 imposed the penalty for concealment of the particulars of income. In the case of Manjunatha Cotton Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT observed where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. The Hon'ble High Court also held that the standard proforma of notice under section 274 of the Act without striking of the irrelevant clause would lead to an inference of non-application of mind by the Assessing Officer and levy of penalty would suffers from non-application of mind. The penalty provisions of section 271(1)(c) of the Act are attracted, where the Assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is also a well-accepted proposition that the aforesaid two limbs of section 271(1)(c) of the Act carry different meanings. Therefore, it is imperative for the Assessing Officer to specify the relevant limb so as to make the Assessee aware, as to what is the charge made against him so that he can respond accordingly. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of loss claimed by the Assessee.
2. Addition of trade payables and initiation of penalty proceedings.
3. Imposition of penalty under section 271(1)(c) of the Income Tax Act.
4. Legal issue regarding the imposition of penalty based on notice specifications.

Issue 1: Disallowance of Loss Claimed by the Assessee
The Assessee declared a loss in its return of income for the assessment year 2012-13. The Assessing Officer disallowed the claimed loss of Rs.12,83,96,466 as the project expenditure included expenses yet to be incurred. The Assessee voluntarily surrendered the loss, leading to its disallowance.

Issue 2: Addition of Trade Payables and Initiation of Penalty Proceedings
The Assessing Officer made an addition of Rs.3,02,436 due to outstanding trade payables for more than three years, considering it as income under section 41(1) of the Act. Additionally, penalty proceedings under section 271(1)(c) were initiated for concealment of income and furnishing inaccurate particulars.

Issue 3: Imposition of Penalty under Section 271(1)(c) of the Income Tax Act
The Assessing Officer levied a penalty of Rs.4,36,41,961 for concealing income and furnishing inaccurate particulars. The Assessee challenged the penalty before the Commissioner, who upheld the penalty. The Assessee then appealed against this decision.

Issue 4: Legal Issue Regarding Imposition of Penalty Based on Notice Specifications
The Assessee challenged the imposition of penalty based on the notice issued by the Assessing Officer, which did not specify the particular limb of penalty proceedings. Citing legal precedents, including the case of M/s. SSA's Emerald Meadows, the Assessee argued that the notice was vague and lacked specificity, rendering the penalty not leviable. The Tribunal agreed with the Assessee, emphasizing the importance of specifying the relevant limb of penalty under section 271(1)(c) to enable the Assessee to respond appropriately.

In conclusion, the Appellate Tribunal allowed the Assessee's appeal, emphasizing the necessity of specifying the relevant limb of penalty proceedings under section 271(1)(c) in the notice issued by the Assessing Officer. The Tribunal held that the penalty was not leviable due to the vague and non-specific nature of the notice, following legal precedents that highlighted the importance of clarity in penalty proceedings.