2018 (7) TMI 1472 - AT - Income Tax

Penalty under Section 271(1)(c) for inaccurate particulars challenged on notice specificity and time limitation, notice found defective.

Analysis concerns validity of a penalty under Section 271(1)(c) for furnishing inaccurate particulars and adequacy of the penalty notice. Tribunal found ... Penalty u/s 271(1)(c) - legality of notice - treating the sale of boundary walls (referred as ‘Building’) as a short term capital asset and consequently held the said building as depreciable asset u/s 50 - time barring penalty order - Held that:- As can be seen that the original assessment order was passed on 27.11.2008 and the penalty was initiated in the same order itself. But since the earlier Assessment was quashed by the Tribunal on 27.04.2012, the fresh Assessment Order was passed on 03.06.2013. Thereafter the penalty order which is challenged before us is passed on 28.10.2013. Thus, the penalty order is within the parameters prescribed by the provisions of the Income Tax Act, 1961, more specifically that of Section 275(1)(a) of the Income Tax Act. Thus, Additional Ground is dismissed. Absence of specific charge pointing out in the notice - Held that:- It is pertinent to note here that the penalty order is based on furnishing of inaccurate particulars but the notice is not specifying exactly on which limb the penalty u/s 271(1)(c) has been initiated. From the notice dated 30.06.2013 produced by the Ld. AR during the hearing, it can be seen that the Assessing Officer was not sure under which limb of provisions of Section 271 of the Income Tax Act, 1961, the assessee is liable for penalty. See CIT Vs. SSA’s Emerald Meadows [2016 (8) TMI 1145 - SC ORDER]- Decided in favour of assessee. Issues Involved:1. Treatment of sale of boundary walls as short term capital asset and depreciable asset under Section 50 of the Income Tax Act, 1961.2. Penalty for concealment of income and furnishing inaccurate particulars under Section 271(1)(c) of the Income Tax Act, 1961.3. Time-barred penalty order under Section 275(1)(a) of the Income Tax Act, 1961.4. Vagueness of the penalty notice.5. Satisfaction for penalty imposition under Section 271 of the Income Tax Act, 1961.Issue-Wise Detailed Analysis:1. Treatment of Sale of Boundary Walls as Short Term Capital Asset:The assessee declared long term capital gain on the sale of land and building. The Assessing Officer (AO) found that the capital gain on the building was erroneous, treating it as a short term capital gain under Section 50 of the Income Tax Act, 1961, because the assessee had claimed depreciation on the building. The ITAT observed that the building is a depreciable asset and directed the AO to treat the transaction of land as long term capital gain and the building as short term capital gain under Section 50, allowing the set off of losses of earlier years.2. Penalty for Concealment of Income and Furnishing Inaccurate Particulars:The AO levied a penalty of Rs. 10,74,878 under Section 271(1)(c) of the Income Tax Act, 1961, for concealing particulars of income and furnishing inaccurate particulars. The CIT(A) upheld this penalty. The assessee argued that no depreciation was claimed on the boundary walls under Section 32 of the Income Tax Act, 1961, and that the penalty proceedings were initiated without a speaking order of the wrongdoing.3. Time-Barred Penalty Order:The assessee contended that the penalty order dated 28.10.2013 was barred by time under the proviso to Section 275(1)(a) of the Income Tax Act, 1961. The penalty proceedings were initiated on 27.11.2008, and the CIT(A) passed an order on 14.09.2010. The ITAT found that the penalty order was within the parameters prescribed by Section 275(1)(a) of the Income Tax Act, 1961, as the fresh assessment order was passed on 03.06.2013, and the penalty order was passed on 28.10.2013.4. Vagueness of the Penalty Notice:The assessee argued that the penalty notice was vague and did not specify under which limb of Section 271(1)(c) the penalty was levied. The ITAT observed that the notice did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. Relying on the decision of the Hon'ble Supreme Court in M/s SSA’s Emerald Meadows, the ITAT found the penalty notice to be invalid and allowed the additional ground.5. Satisfaction for Penalty Imposition:The assessee argued that the penalty was levied not on the basis of the original assessment order but on the basis of the ITAT’s direction, which does not amount to satisfaction under Section 271 of the Income Tax Act, 1961. The ITAT did not find it necessary to comment on the merits of the case due to the invalidity of the penalty notice.Conclusion:The ITAT allowed the appeal of the assessee, quashing the penalty under Section 271(1)(c) of the Income Tax Act, 1961, due to the invalidity of the penalty notice. The additional ground regarding the time-barred penalty order was dismissed, while the additional ground regarding the vagueness of the penalty notice was allowed. The penalty imposition was found to be procedurally flawed, rendering the penalty order null and void.