2018 (2) TMI 737 - AT - Income Tax

Tribunal rules in favor of Assessee, finding penalty notice non-compliant with legal requirements

M/s Sigma Paradise Versus ACIT, Ghaziabad Circle, Ghaziabad

The Tribunal ruled in favor of the Assessee in an appeal against the Order of the Ld. Commissioner of Income Tax (Appeals) for the assessment year ... Penalty u/s. 271 - defective notice - Held that:- AO has initiated the penalty for concealing the particulars of income or furnishing inaccurate particulars of income as well as in the penalty order dated 29.6.2016 he held that the assessee had without reasonable cause concealed the particulars of his income, and / or furnished inaccurate particulars of income assessed. Therefore, in view of above, the penalty in dispute is not sustainable in the eyes of law and needs to be deleted. See CIT & Anr. Vs. M/s SSA’s Emerald Meadows [2015 (11) TMI 1620 – Karnataka High Court] wherein held that the notice issued by the Assessing Officer under section 274 read with Section 271(1)(c) to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. - Decided in favour of assessee Issues:Appeal against Order of Ld. Commissioner of Income Tax (Appeals) - Assessment year 2013-14.1. Validity of the order passed by Ld. Commissioner of Income Tax (Appeals).2. Confirmation of penalty under section 271(1)(c) of the Income Tax Act, 1961.3. Substantiation of purchase expenses and penalty confirmation.4. Concealment of Interest Income and penalty confirmation.Analysis:Issue 1: Validity of the order by Ld. Commissioner of Income Tax (Appeals)The Assessee challenged the order of the Ld. Commissioner of Income Tax (Appeals) on the grounds of being bad in law. The Assessee contended that the order was erroneous and failed to comply with legal requirements. The Ld. CIT (A) was accused of confirming the Assessing Officer's order without proper justification. The Assessee raised concerns regarding the substantiation of purchase expenses and the concealment of interest income, leading to penalties under section 271(1)(c).Issue 2: Confirmation of penalty under section 271(1)(c)The Ld. CIT (A) confirmed the penalty imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961. The Assessee argued that disallowance of expenses should not automatically result in penalties for inaccurate particulars of income. The Assessee maintained that the penalty proceedings were flawed from the beginning due to ambiguity in the notice issued for penalty initiation. The Assessee cited legal precedents to support the argument that the penalty notice did not specify the grounds for penalty accurately, rendering the penalty unsustainable in law.Issue 3: Substantiation of purchase expenses and penalty confirmationThe Ld. CIT (A) observed that the Assessee failed to substantiate purchase expenses, leading to penalties under section 271(1)(c). However, the Assessee contended that the penalty proceedings were unjust as the Assessing Officer did not explicitly record the concealment of income particulars in the assessment order. The Assessee emphasized that any discrepancies were unintentional and promptly rectified, thus challenging the basis for penalty imposition.Issue 4: Concealment of Interest Income and penalty confirmationRegarding the concealment of interest income, the Ld. CIT (A) alleged that the Assessee had concealed income, which the Assessee refuted by citing a clerical error and voluntary disclosure before being notified by the Assessing Officer. The Assessee argued that the penalty confirmation was unjust as the Assessing Officer did not expressly state the concealment of income particulars in the assessment order, questioning the validity of penalty imposition.In the final judgment, the Tribunal, after considering the arguments presented by both parties and legal precedents, ruled in favor of the Assessee. The Tribunal found the penalty notice ambiguous and not in compliance with legal requirements, leading to the deletion of the penalty in dispute. The decision was based on the principle that penalty proceedings must specify the grounds accurately, as highlighted in relevant legal judgments. Consequently, the appeal filed by the Assessee was allowed, and the penalty was deleted, resolving the issues raised in the appeal.