2019 (3) TMI 696 - AT - Income Tax

Tribunal overturns penalty due to vague notice

Shri Ratan Kumar Sharma Versus I.T.O., Ward 7 (1). Jaipur.

The Tribunal allowed the appeal of the assessee, directing the Assessing Officer to delete the penalty imposed under Section 271(1)(c) of the Income Tax ... Penalty u/s 271(1)(c) - non specification of charge - non specifying in which limb of Section 271(1)(c) the penalty proceedings has been initiated as to whether it was for concealment of income or for furnishing inaccurate particulars of income - defective notice - assessee in return filed u/s 153A declared capital gain on the basis of consideration received as specified in registered sale deed - HELD THAT:- As decided in SHEVETA CONSTRUCTION CO. PVT. LTD., THROUGH ITS MANAGING DIRECTOR DINESH KR. CHOUDHARY VERSUS ITO, WARD 3 (4) , JAIPUR [2016 (12) TMI 1603 - RAJASTHAN HIGH COURT] A.O. has to give a notice as to whether he proposes to levy penalty for concealment of income or furnishing inaccurate particulars. He cannot have both the conditions and if it is so he has to say so in the notice and record a finding in the penalty order. The intent and purpose of this notice is to inform the assessee as to the specific charge for which he has been show caused so that he could furnish his reply without any confusion and to the point. In the present case, neither the assessee nor anyone else could make out as to whether the notice u/s. 274 r.w.S. 271 of the Act was issued for concealing the particulars of income or for furnishing inaccurate particulars of such income disabling it to meet with the case of the Assessing Officer. There are a catena of judgments highlighting the necessity for identifying the charge for which the assessee is being visited and in all those decisions, Hon'ble Courts have repeatedly held that where the jurisdictional notice is vague, similar to the one in the present case, the consequent levy cannot be sustained. See MS. NEHA SHARMA VERSUS I.T.O., WARD 2 (3). JAIPUR. [2019 (3) TMI 599 - ITAT JAIPUR] - Decided in favour of assessee. Issues Involved:1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.2. Specification of the limb under which penalty proceedings were initiated (concealment of income or furnishing inaccurate particulars of income).3. Validity of the penalty notice issued under Section 274 read with Section 271(1)(c).4. Merits of the penalty based on the estimation of higher capital gains.Detailed Analysis:1. Levy of Penalty Under Section 271(1)(c):The assessee, a doctor, was penalized Rs. 18,99,042 under Section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 2010-11. The penalty was imposed following a search at the assessee's residence and clinic, which led to the discovery of additional income. The Assessing Officer (A.O.) completed the assessment with significant additions, including long-term capital gains (LTCG) and other heads, which were partially upheld by the CIT(A) and ITAT.2. Specification of the Limb for Penalty Proceedings:The primary grievance of the assessee was that the penalty notice did not specify whether the penalty was for 'concealment of income' or 'furnishing inaccurate particulars of income.' The A.O. used a pre-printed notice without striking off the irrelevant portions, indicating a lack of application of mind. The penalty order also mixed both limbs, stating that the assessee had 'furnished inaccurate particulars of income and concealed his income.'3. Validity of the Penalty Notice:The assessee argued that the notice under Section 274 read with Section 271(1)(c) was invalid as it did not clearly specify the limb under which the penalty was initiated. This argument was supported by various judicial precedents, including the Karnataka High Court's decision in CIT Vs. M/s SSA’s Emerald Meadows and Manjunatha Cotton & Ginning Factory, which held that such notices must be specific to be valid. The Supreme Court dismissed the SLP against these decisions, affirming the requirement for specificity in penalty notices.4. Merits of the Penalty Based on Estimation of Higher Capital Gains:On the merits, the assessee contended that the penalty was unwarranted as the addition to capital gains was based on an estimate rather than concrete evidence. The A.O. had estimated higher capital gains based on rough notings and statements from family members, without any direct evidence of on-money transactions. The assessee argued that penalty should not be imposed for additions made on an estimated basis.Conclusion:The Tribunal found merit in the assessee's arguments, particularly regarding the invalidity of the penalty notice due to its failure to specify the exact charge. The Tribunal referenced several judicial precedents that supported the necessity for clear and specific notices under Section 274 read with Section 271(1)(c). Consequently, the Tribunal directed the A.O. to delete the penalty imposed under Section 271(1)(c) of the Act.Order:The appeal of the assessee was allowed, and the penalty imposed was ordered to be deleted. The judgment emphasized the importance of specificity in penalty notices to ensure fair opportunity and adherence to principles of natural justice.