2020 (11) TMI 776 - AT - Income Tax

Appeal allowed due to flawed penalty proceedings under Income-tax Act - penalty order set aside

The Tribunal allowed the appeal against the penalty order under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2012-13. It was held ... Penalty levied u/s 271(1) (c) - Defective notice - TP Adjustment - HELD THAT:- Bare perusal of the notices issued u/s 274 read with section 271(1)(c) of the Act, extracted above, in order to initiate the penalty proceedings against the assessee go to prove that at that point of time, AO himself was not aware/sure as to whether he is initiating penalty proceedings by way of impugned notice either for “concealment of particulars of income” or “furnishing of inaccurate particulars of income” by the assessee rather issued vague or ambiguous notice by incorporating both the limbs of section 271 (1) (c) of the Act. AO also neither invoked Explanation 7 of section 271(1)(c) of the Act nor any satisfaction note in the notices initiating the penalty proceedings has been recorded. When the charge is to be framed against any person so as to move the penal provision against assessee, he is required to be specifically made aware of the charges to be levied against the assessee under specific provisions of the Act. Not only this, even at the time of assessment proceedings, AO has not applied his mind as to whether he is satisfied if the assessee company has “concealed the income” or “furnished inaccurate particulars of income” mandatory to initiate the penalty proceedings u/s 271(1)(c) of the Act which is apparent from the satisfaction note of the AO - When the AO has not applied his mind at the time of initiation of penalty proceedings by satisfying himself if it is a case of “concealment of income” or “furnishing of inaccurate particulars of income” then the entire penalty proceedings are vitiated and bad in law. - Decided in favour of assessee. Issues:1. Appeal against penalty order under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2012-13.2. Whether penalty was validly imposed for concealing income or furnishing inaccurate particulars.3. Compliance with notice requirements for initiating penalty proceedings.4. Application of Explanation 7 to section 271(1)(c) of the Act.5. Adequacy of charges specified for penalty initiation.Detailed Analysis:Issue 1:The appeal sought to set aside the penalty order under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2012-13.Issue 2:The main contention was whether the penalty was validly imposed for concealing income or furnishing inaccurate particulars. The appellant argued that the penalty was initiated for both charges but was levied only for furnishing inaccurate particulars, questioning the validity of the penalty.Issue 3:The compliance with notice requirements for initiating penalty proceedings was challenged. The appellant argued that the notices issued were vague and ambiguous, failing to specify under which limb of section 271(1)(c) of the Act the penalty proceedings were being initiated.Issue 4:The application of Explanation 7 to section 271(1)(c) of the Act was raised. The appellant contended that the explanation was not applicable, and therefore, the penalty levied was not valid in law.Issue 5:The adequacy of charges specified for penalty initiation was debated. The appellant highlighted that the charges against the assessee were not clearly defined at the time of initiating penalty proceedings, rendering the penalty unsustainable.In the judgment, it was noted that the Transfer Pricing Officer determined the arm's length price for international transactions, leading to the addition of income to the assessee. However, the Tribunal found that the penalty proceedings were flawed due to the vague and ambiguous notices issued by the Assessing Officer, which did not specify the charges clearly. The Tribunal emphasized the importance of clearly defining the charges under which the penalty is being initiated, as per the requirements of the Act. Consequently, the penalty levied was deemed unsustainable in the eyes of the law, and the appeal by the assessee was allowed.This detailed analysis covers the various issues involved in the legal judgment, providing a comprehensive overview of the arguments presented and the Tribunal's decision.