2023 (12) TMI 714 - HC - Income Tax

Penalty u/s 271(1)(c) - defective notice - non specification of clear charge - Tribunal, had set aside the findings of CIT (Appeals) and directed the AO to delete the penalty as AO, while initiating penalty proceedings under Section 271(1)(c) of the Act, should have alluded to the limb under which penalty is proposed to be levied - HELD THAT - AO should have stipulated as to whether the penalty was proposed to be imposed on the respondent/assessee for concealment of particulars of its income, or furnishing inaccurate particulars. Tribunal notes that a lack of clarity was apparent upon perusal of paragraph four (4) of the penalty order. According to us the view taken by the Tribunal is correct. The respondent/assessee was entitled to know, clearly, the charge levelled against it. As adverted to in the Unitech Reliable Projects Pvt. Ltd. 2023 (6) TMI 1219 - DELHI HIGH COURT case, the imposition of a penalty entails several consequences. The AO is required to apply his mind to the material and indicate, clearly, to the assessee what is being put against him. In other words, which limb of Section 271(1)(c) of the Act is attracted in the given facts and circumstances of the case. It is our view, that this clarity would be necessary as the pecuniary burden that the assessee may be mulct with could vary, depending on the infraction committed by him. Thus, in the given case, where concealment has taken place, a heavier burden may be imposed, as compared to the situation where the assessee furnishes inaccurate particulars. We may also make it clear that there may be circumstances where both limbs are attracted. If that is the situation, the notice should allude to this aspect.No substantial question of law arises for our consideration.

Summary

Issues involved:
The appeal concerns Assessment Year (AY) 2014-15. The main issue is the penalty amounting to Rs. 7,99,90,570/- imposed under Section 271(1)(c) of the Income Tax Act 1961. The Tribunal set aside the findings of the Commissioner of Income Tax (Appeals) and directed the Assessing Officer to delete the penalty due to lack of clarity in specifying the limb under which the penalty is proposed to be levied.

Details of the Judgment:

*Issue 1: Lack of clarity in specifying the limb under Section 271(1)(c)*

The Tribunal set aside the penalty order as the Assessing Officer (AO) failed to clearly specify whether the penalty was proposed for concealment of income or furnishing inaccurate particulars. The lack of clarity in the penalty order led to confusion regarding the charge against the respondent/assessee. The Tribunal emphasized the necessity of clearly indicating the specific limb of Section 271(1)(c) under which penalty proceedings are initiated, citing various judgments supporting this view.

*Issue 2: Importance of specifying the limb of penalty*

The judgment highlighted the significance of specifying the limb of penalty under Section 271(1)(c) to ensure clarity for the assessee and to determine the appropriate pecuniary burden. The AO's failure to indicate the specific limb in the penalty notice and assessment order was deemed crucial, as it impacts the severity of the penalty imposed. The Tribunal stressed that penalty proceedings entail civil consequences, requiring the AO to apply his mind and clearly communicate the nature of the charge to the assessee.

*Issue 3: Consequences of ambiguity in penalty proceedings*

Ambiguity in penalty proceedings, particularly regarding the specific limb of Section 271(1)(c) under which penalty is imposed, can lead to legal challenges and potential invalidation of the penalty order. The judgment emphasized that in cases where concealment of income is involved, a heavier penalty may be warranted compared to situations involving inaccurate particulars. The Tribunal reiterated that specifying the relevant limb in penalty proceedings is essential to ensure fairness and transparency in tax assessments.

*Conclusion:*

The High Court upheld the Tribunal's decision to set aside the penalty order due to the lack of clarity in specifying the limb under Section 271(1)(c). The judgment underscored the importance of clearly indicating the nature of the charge in penalty proceedings to safeguard the rights of the assessee and ensure a fair assessment process. As no substantial question of law arose, the appeal was closed, and the application for condonation of delay was rendered infructuous. Parties were instructed to act based on the digitally signed copy of the order.