2017 (12) TMI 790 - AT - Income Tax

Invalid Penalty Notice Overturned Due to Jurisdiction Issues

The tribunal held that the penalty of Rs. 15,20,000/- was unjustified and illegal due to invalid jurisdiction assumption, lack of clarity in the penalty ... Penalty u/s 271(1)(c) - recording of satisfaction - AO was not clear at all as to the fact whether penalty was being levied on the concealment of income or furnishing of inaccurate particulars of income by the assessee - Held that:- It is settled law that penalty cannot be levied for twin charges. Penalty cannot be levied for two mutually exclusive situations. The default for concealment of particulars of income or furnishing of inaccurate particulars are two mutually exclusive situations. The position of law in this is well settled and reference in this regard may be made to judgments of Hon’ble Gujarat High Court in the case of New Sorathia Engg Co. vs. CIT [2006 (1) TMI 71 - GUJARAT High Court], CIT vs. Manu Engg. Works [1978 (9) TMI 18 - GUJARAT High Court] and CIT vs. Lakhdhir Lalji [1971 (9) TMI 33 - GUJARAT High Court]. This view has been again reiterated also by Hon’ble Andhra Pradesh High Court in the case of Pr. CIT vs. Smt. Baisetty Revathi (2017 (7) TMI 776 - ANDHRA PRADESH HIGH COURT). Thus viewed from any angle we find that levy of penalty in this case is not justified and the impugned penalty order is illegal. Therefore, we have no other option but to delete the same. Thus, the penalty is hereby directed to deleted. Since, penalty is deleted on jurisdictional ground, we are not deciding other issues raised by assessee. As a result, the grounds of appeal raised by the assessee are allowed. Issues Involved:1. Jurisdiction of the Assessing Officer (AO) to levy penalty under section 271(1)(c) of the Income-tax Act, 1961.2. Validity of the penalty notice issued under section 274.3. Recording of satisfaction by the AO for initiation of penalty proceedings.4. Specificity of the charge in the penalty notice and order.5. Applicability of judgments from higher courts regarding the levy of penalty.6. Whether penalty can be levied for both concealment of income and furnishing inaccurate particulars of income.Detailed Analysis:1. Jurisdiction of the AO to Levy Penalty:The assessee challenged the jurisdiction of the AO to levy the penalty, arguing that the penalty notice under section 274 did not specify whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. The tribunal noted that the jurisdictional notice was invalid as it did not clearly specify the charge, thus making the assumption of jurisdiction by the AO bad in law.2. Validity of the Penalty Notice:The tribunal examined the penalty notice and found that the applicable clause for the levy of penalty was not ticked. Instead, an irrelevant clause was marked, indicating a failure to comply with notices under different sections, which had no bearing on the penalty under section 271(1)(c). This lack of clarity rendered the penalty notice invalid.3. Recording of Satisfaction by the AO:The tribunal observed that the AO did not record proper satisfaction in the assessment order for initiating penalty proceedings. The assessment order merely stated that penalty proceedings under section 271(1)(c) were initiated without specifying the grounds. This failure to record satisfaction was against the legal requirements, making the initiation of penalty proceedings invalid.4. Specificity of the Charge:The tribunal emphasized that the charge in the penalty notice and order must be clear and specific. The AO's failure to specify whether the penalty was for concealment of income or for furnishing inaccurate particulars of income at any stage—assessment order, penalty notice, or penalty order—was a serious lapse. The tribunal cited the Supreme Court's judgment in CIT vs. SSA’s Emerald Meadows, which mandates clear specification of the charge in the penalty notice.5. Applicability of Higher Court Judgments:The tribunal referred to several judgments, including those from the Supreme Court and High Courts, which supported the assessee's contention that the penalty notice must clearly specify the charge. The tribunal noted that the Bombay High Court's judgment in Maharaj Garage & Co. did not consider the Supreme Court's ruling in SSA’s Emerald Meadows, making it less applicable. The tribunal followed the Supreme Court's judgment, which is binding.6. Penalty for Both Concealment and Furnishing Inaccurate Particulars:The tribunal rejected the revenue's argument that penalty could be upheld for both concealment of income and furnishing inaccurate particulars of income. It held that these are mutually exclusive situations and penalty cannot be levied for both. The tribunal cited judgments from the Gujarat High Court and Andhra Pradesh High Court, which support the view that penalty cannot be levied for twin charges.Conclusion:The tribunal concluded that the penalty of Rs. 15,20,000/- was not justified and was illegal due to the invalid assumption of jurisdiction, lack of clarity in the penalty notice, and failure to record proper satisfaction. The penalty was directed to be deleted, and the appeal of the assessee was allowed. The tribunal did not address other issues raised by the assessee as the penalty was deleted on jurisdictional grounds.Pronouncement:The order was pronounced in the open court on 21.11.2017.