2019 (5) TMI 183 - AT - Income Tax

Penalty canceled due to unclear grounds in notice issued under Income-tax Act - importance of clarity in penalty proceedings

The Tribunal set aside the CIT(A)'s order and canceled the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961, due to the Assessing ... Penalty passed u/s 271[1][c] - defective notice - penalty proceedings is initiated for furnishing of inaccurate particulars of income or concealment of income - HELD THAT:- Penalty proceedings are attracted only where the assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is well accepted proposition that the aforesaid two limbs of section 271(1)(c) carry different meaning and the AO should be clear as to the limb under which penalty is being levied. When the AO proposes to invoke the first limb being concealment of income, notice has to be appropriately marked. In the present case, we found that the AO has marked the concealment of particulars of income and furnishing of inaccurate particulars of income. It is imperative and clear that the AO is not sure on which limb the penalty is being levied. Passing of penalty order u/s 271(1)(c), found that there is no application of mind by the AO as he has marked both limbs of notice which is bad in law. We set aside the order of the CIT(A) and cancel the penalty order dated 31/12/2007 and allow the grounds of appeal of the assessee. - Decided in favour of assessee. Issues Involved:1. Appeal against penalty order u/s 271(1)(c) of the Income-tax Act, 1961.2. Disallowance u/s 40A(3) and unaccounted purchases.3. Legality of penalty proceedings initiated by the Assessing Officer.4. Application of mind by the Assessing Officer in passing the penalty order.Issue 1: Appeal against penalty order u/s 271(1)(c) of the Income-tax Act, 1961:The assessee appealed against the penalty levied u/s 271(1)(c) of the Act, contending that the penalty was unjustified as there was no concealment or furnishing of inaccurate particulars of income. The CIT(A) upheld the penalty, leading to the appeal before the Tribunal. The AO had levied a penalty of 100% of the amount in question, which the CIT(A) confirmed despite the absence of the assessee during the appeal hearing. The Tribunal, after considering the arguments, found that the AO had not clearly specified the grounds for the penalty in the notice issued. As the notice indicated both concealment and furnishing of inaccurate particulars of income, without clarity on the specific ground, the Tribunal held that there was no proper application of mind by the AO. Consequently, the Tribunal set aside the CIT(A)'s order and canceled the penalty.Issue 2: Disallowance u/s 40A(3) and unaccounted purchases:The case involved disallowance u/s 40A(3) and unaccounted purchases by the assessee, engaged in trading and processing of granite blocks. The AO made additions based on non-maintenance of proper records and unaccounted purchases, leading to the assessment of additional income. The CIT(A) upheld a portion of the addition related to unaccounted cash purchases. Subsequently, penalty proceedings were initiated by the AO, resulting in the imposition of a penalty that was challenged by the assessee. The Tribunal's decision primarily focused on the penalty issue, ultimately ruling in favor of the assessee based on the lack of clarity in the penalty notice.Issue 3: Legality of penalty proceedings initiated by the Assessing Officer:The legality of the penalty proceedings initiated by the Assessing Officer was questioned by the assessee, emphasizing that the notice did not clearly specify whether the penalty was for concealment of income or furnishing inaccurate particulars. The Tribunal agreed with this contention, highlighting the importance of clarity in penalty notices to ensure proper application of mind by the authorities. In this case, the Tribunal found that the notice lacked specificity, leading to the cancellation of the penalty order.Issue 4: Application of mind by the Assessing Officer in passing the penalty order:The Tribunal scrutinized the penalty order passed by the Assessing Officer and found that there was a lack of proper application of mind. The AO had issued a notice that included both grounds for penalty without clearly specifying the basis for the penalty. This lack of clarity indicated a failure to consider the specific provisions under which the penalty was being levied, leading to the Tribunal's decision to cancel the penalty order based on the principle that penalty proceedings should be initiated with a clear understanding of the alleged offense.This detailed analysis of the judgment from the Appellate Tribunal ITAT Bangalore highlights the key issues involved, the arguments presented, and the Tribunal's decision in favor of the assessee based on the lack of clarity in the penalty notice and the absence of proper application of mind by the Assessing Officer.