2021 (6) TMI 934 - AT - Income Tax

Tribunal Overturns Penalty for Lack of Clarity in Notice & Assessment Order

Smt. Natasha Jain Versus Income Tax Officer Ward-2 (1), Dehradun.

Smt. Natasha Jain Versus Income Tax Officer Ward-2 (1), Dehradun. - TMI Issues Involved:1. Validity of penalty under Section 271(1)(c) of the Income Tax Act, 1961.2. Whether the assessee was made aware of the specific charge for the imposition of penalty.3. The correctness of the penalty proceedings initiated by the Assessing Officer (AO).4. The assessee’s claim for exemption under Section 54 of the Income Tax Act, 1961.5. The nature of the property purchased by the assessee and its qualification for deduction under Section 54.Detailed Analysis:1. Validity of Penalty under Section 271(1)(c):The core issue revolves around the imposition of a penalty under Section 271(1)(c) of the Income Tax Act, 1961. The AO had levied a penalty of Rs. 11,30,352/- on the grounds of furnishing inaccurate particulars of income. The CIT(A) upheld the penalty in part, reducing it to Rs. 9,97,600/-. The assessee argued that the penalty was invalid as the AO did not record a clear satisfaction in the assessment order regarding whether the penalty was for 'concealment of income' or 'furnishing inaccurate particulars of income.'2. Awareness of Specific Charge:The assessee contended that the notice issued under Section 274 did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars of income. The Tribunal noted that the notice was ambiguous, stating, 'Concealed the particulars of your income and/or furnished inaccurate particulars of such income.' This lack of specificity was deemed a defect that vitiated the penalty proceedings. The Tribunal cited the Hon’ble High Court of Delhi in Sahara India Insurance Company Ltd and the Hon’ble Karnataka High Court in CIT vs. Manjunatha Cotton and Ginning Factory, which held that such ambiguity in the notice invalidates the penalty proceedings.3. Correctness of Penalty Proceedings:The Tribunal emphasized that penalty under Section 271(1)(c) is not automatic and requires clear proof of concealment or furnishing inaccurate particulars. The AO must provide a specific finding or direction in the assessment order to initiate penalty proceedings. In this case, the Tribunal found that the AO failed to meet these requirements, rendering the penalty proceedings unsustainable.4. Claim for Exemption under Section 54:The assessee had initially claimed exemption under Section 54 by stating an investment of Rs. 40 lacs in property. However, the AO recalculated the Long Term Capital Gain (LTCG) and found discrepancies, leading to a revised computation of Rs. 49,29,337/-. The assessee’s appeal to the CIT(A) was unsuccessful, and the penalty was upheld in part. The Tribunal noted that the assessee had disclosed the particulars of LTCG and reasons for claiming the deduction in her return, suggesting that the claim was made in good faith.5. Nature of Property Purchased:The assessee argued that the property purchased at Village Kyarkuli, near Mussoorie, qualified for deduction under Section 54 as it comprised land and a tin shed, which was a common construction in that area due to heavy rainfall. The CIT(A) rejected this claim, suspecting it to be dubious. However, the Tribunal found that the assessee’s explanation was bona fide and that the claim for deduction was made in good faith, thus not amounting to furnishing inaccurate particulars.Conclusion:The Tribunal allowed the appeal, setting aside the order of the CIT(A) and directing the AO to delete the penalty. The decision was based on the ambiguity in the notice issued under Section 274, the lack of specific findings in the assessment order, and the bona fide nature of the assessee’s claim for exemption under Section 54. The Tribunal emphasized the need for clear and specific charges in penalty proceedings and upheld the principle that penalty cannot be imposed merely on the basis of confirmed additions to income.