ITAT Mumbai voids penalties under Income Tax Act for lack of clarity in penalty imposition process

The Appellate Tribunal ITAT Mumbai nullified penalty orders for AYs 2011-12 & 2012-13 imposed under section 271(1)(c) of the Income Tax Act. The Tribunal found the penalty imposition lacking clarity as the AO failed to specify the exact limb of section 271(1)(c) contravened. This lack of clarity raised concerns about the penalty imposition process, leading to the quashing of penalty orders for both years. The Tribunal's decision, pronounced on 6th March 2019, allowed the assessee's appeals and set aside the penalty orders.

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Issues:
Challenging penalty levied by AO for AYs 2011-12 & 2012-13 for furnishing inaccurate income particulars.

Analysis:
The Appellate Tribunal ITAT Mumbai heard appeals filed by the assessee against penalty orders confirmed by the Ld. Commissioner of Income Tax (Appeals)-4, Mumbai. The AO initiated penalty proceedings under section 271(1)(c) of the Income Tax Act for the AYs 2011-12 & 2012-13 due to the assessee's failure to furnish returns of income and disallowed expenses claimed without proper evidence. The penalty amounts were Rs. 9,79,655/- for AY 2011-12 and Rs. 8,93,525/- for AY 2012-13. The AO observed that the assessee concealed income particulars and furnished inaccurate income particulars, leading to the penalty imposition.

The Ld. CIT(A) upheld the penalty, prompting the assessee to appeal. During the hearing, it was revealed that the AO had not clarified which limb of section 271(1)(c) the penalty was imposed under, causing a contradiction in the penalty order. The AO penalized for both "concealment of particulars of income" and "furnishing of inaccurate particulars of income," which raised concerns about the clarity of the penalty imposition process.

Citing a case from the Hon'ble Bombay High Court, the Tribunal highlighted that the AO must specify the exact limb of section 271(1)(c) contravened during penalty initiation. In this case, the AO's failure to clarify which limb influenced the penalty imposition indicated a lack of proper consideration, potentially vitiating the penalty proceedings. Consequently, the Tribunal set aside the Ld. CIT(A)'s orders and nullified the penalty orders for both years, emphasizing the legal issue's resolution without addressing the merits.

Ultimately, both appeals of the assessee were allowed, and the penalty orders were quashed due to the lack of clarity in the penalty imposition process. The Tribunal's decision was pronounced on 6th March 2019.

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