2019 (6) TMI 787 - AT - Income Tax

Penalty notice deemed vague and ambiguous, Tribunal orders deletion, citing lack of malafide intent.

The Tribunal found that the penalty proceedings lacked proper application of mind by the Assessing Officer (AO). The penalty notice was vague and ... Penalty u/s 271(1)(c) - claiming wrong exemption u/s 54F on construction of first floor of property at Sainik Farms - CIT (A) sustaining penalty in order passed the Appellate Order ex-party - HELD THAT:- In the instant case, not only the notice issued to the assessee under section 274 read with section 271(1)(c) is defective but AO has not even made himself satisfied at the time of making disallowance / addition in assessment order if the assessee has furnished inaccurate particulars of income or has concealed particulars of his income rather to be on the safer side he has invoked both the limbs of section 271(1)(c). This is not merely a case of serving a defective notice under section 274 read with section 271(1) on the assessee rather it is a case of non-application of mind on the part of the AO to make himself satisfied as to under which limb of section 271(1)(c) of the Act, he is going to initiate/levy the penalty on the assessee and as such, decision of Sundaram Finance Ltd. [2018 (10) TMI 1451 - SC ORDER] relied upon by the ld. DR for the Revenue is not applicable to the facts and circumstances of the case. The facts of this case is covered by Hon’ble Apex Court in case of CIT vs. Reliance Petro Products Pvt. Ltd. . [2010 (3) TMI 80 - SUPREME COURT] wherein it is held that merely making claim which is not sustainable in law by itself would not amount to furnishing of inaccurate particulars of income Coordinate Bench of the Tribunal in case cited as Shri D. Harindran vs. ITO [2016 (9) TMI 1462 - ITAT CHENNAI] decided the identical issue in favour of the assessee in the light of the decision of Rajasthan Spinning and Weaving Mills [2009 (5) TMI 15 - SUPREME COURT] and CIT vs. Gem Granites [2013 (11) TMI 1375 - MADRAS HIGH COURT] by holding that even if it is considered that the claim made by the assessee u/s 54/54F is incorrect, it would not tantamount to furnishing of inaccurate particulars of income Referring to ledger account of capital work-in-progress qua construction of residential property for claiming deduction u/s 54 the assessee has claimed deduction u/s 54 for raising construction of house bonafidely qua which the AO has taken different view that it does not amount to construction of house rather it is renovation/interior designing. In the face of the ledger account of capital work-in-progress brought on record by the assessee, when we examine the assessment order it is nowhere mentioned by the AO that at any point of time, he has visited the property in question or the property claimed to have been constructed by the assessee was not having sanctioned site plan. Rather AO proceeded to reject the claim of the assessee on the basis of imagination that the construction claimed by the assessee amounts to renovation/interior designing. - Decided in favour of assessee. Issues Involved:1. Sustaining penalty under Section 271(1)(c) of the Income Tax Act.2. Specificity of the penalty notice under Section 274 read with Section 271(1)(c).3. Alleged concealment of income or furnishing of inaccurate particulars.4. Validity of the penalty notice and adherence to natural justice.5. Excessiveness of the penalty levied.Detailed Analysis:1. Sustaining Penalty under Section 271(1)(c) of the Income Tax Act:The appellant (assessee) contested the penalty of Rs. 20,30,403/- imposed by the Assessing Officer (AO) for allegedly claiming a wrong exemption of Rs. 67,68,010/- under Section 54F of the Act. The AO concluded that the assessee willfully furnished inaccurate particulars of income, leading to the imposition of the penalty. The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the penalty, leading the assessee to appeal to the Tribunal.2. Specificity of the Penalty Notice under Section 274 read with Section 271(1)(c):The Tribunal noted that the AO's notice under Section 274 read with Section 271(1)(c) did not specify whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. This ambiguity was highlighted as a critical issue, as the AO must be clear and specific about the charge being levied. The Tribunal referenced the Supreme Court's decision in CIT vs. SSA’s Emerala Meadows, which held that a penalty notice must specify the exact charge.3. Alleged Concealment of Income or Furnishing of Inaccurate Particulars:The Tribunal examined whether the assessee concealed income or furnished inaccurate particulars. The assessee had claimed a deduction under Section 54 for constructing a house, but the AO treated the expenditure as renovation rather than new construction. The Tribunal found that the assessee provided all necessary details and there was no evidence of malafide intent. The Tribunal cited the Supreme Court's judgment in CIT vs. Reliance Petro Products Pvt. Ltd., which held that merely making an unsustainable claim does not amount to furnishing inaccurate particulars.4. Validity of the Penalty Notice and Adherence to Natural Justice:The Tribunal scrutinized the penalty notice and found it defective due to the lack of specificity. The AO's failure to clearly state the charge in the notice was deemed a violation of natural justice. The Tribunal emphasized that the AO must apply their mind and be clear about the charge when initiating penalty proceedings. The Tribunal referenced the Madras High Court's decision in Sundaram Finance Ltd. vs. CIT, which upheld penalties only when the notice was clear and specific.5. Excessiveness of the Penalty Levied:The assessee argued that the penalty was excessive, as the tax levied on the addition of long-term capital gain was 20%, but the penalty imposed was 30%. The Tribunal did not focus extensively on this argument, as the primary issues were the validity of the penalty notice and the lack of evidence for concealment or furnishing inaccurate particulars.Conclusion:The Tribunal concluded that the penalty proceedings were initiated and completed in a mechanical manner, without proper application of mind by the AO. The penalty notice was found to be vague and ambiguous, and there was no evidence of the assessee's malafide intent. Consequently, the Tribunal ordered the deletion of the penalty and allowed the appeal filed by the assessee. The decision was pronounced on June 13, 2019.