2022 (7) TMI 324 - AT - Income Tax

Penalty order quashed due to defective notice & debatable issues. Clear charges crucial.

Shaileshkumar Shivrambhai Patel Versus The ITO, Ward-5 Palanpur

The Tribunal quashed the penalty order under section 271(1)(c) of the Income Tax Act due to a defective notice and the debatable nature of issues in the ... Penalty u/s 271(1)(c) - Defective notice u/s 274 - Non specification of clear charge - assessee argued for non mentioning of whether assessee has been penalized for furnishing of inaccurate particulars of income or concealment of income? - HELD THAT:- The basis of levy of penalty itself is not correct. Apart from this, assessee's appeal in quantum proceedings has been admitted by Hon'ble jurisdictional High Court, therefore issue in quantum proceedings are debatable, hence penalty on debatable issue should not be levied, as held in the case of Ankita Electronics (Pvt) Ltd. (2015 (3) TMI 1029 - KARNATAKA HIGH COURT] hence penalty order under section 271(1)(c) of the Act, needs to be quashed. Accordingly, we quash the penalty order under section 271(1) (c) of the Act. - Decided in favour of assessee. Issues Involved:1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act, 1961.2. Validity of the notice issued for penalty proceedings.3. Impact of the substantial question of law admitted by the High Court on the penalty.Issue-wise Detailed Analysis:1. Confirmation of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:The core issue revolves around the penalty of Rs. 36,96,378/- levied under section 271(1)(c) of the Income Tax Act for the Assessment Year 2012-13. The penalty was imposed by the Assessing Officer (AO) on the grounds of 'furnishing inaccurate particulars of income' and 'concealment of income.' The AO added Rs. 1,22,24,800/- under section 68, assuming that the assessee was unable to prove the source of the income and was concealing it. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed this penalty.2. Validity of the Notice Issued for Penalty Proceedings:The notice issued under section 271(1)(c) was challenged by the assessee as being defective. The notice did not specify whether the penalty was for 'furnishing inaccurate particulars of income' or 'concealment of income.' The Tribunal noted that the penalty order was ambiguous, as it did not clearly state the specific charge against the assessee. This lack of specificity was found to be contrary to the requirements established by the Hon'ble Supreme Court in T Ashok Pai and the Hon'ble Gujarat High Court in Manu Engineering Works, which mandate that the penalty order must clearly state the limb under which the penalty is levied.3. Impact of the Substantial Question of Law Admitted by the High Court on the Penalty:The assessee's appeal in the quantum proceedings was admitted by the Hon'ble Gujarat High Court, indicating that the issues were debatable. The Tribunal referenced the Hon'ble High Court of Karnataka's decision in Ankita Electronics (P.) Ltd., which held that if the substantial question of law is admitted by the High Court, it implies that the issues are debatable, and therefore, penalty should not be levied on such debatable issues. The Tribunal agreed with this reasoning, noting that the penalty should not be imposed when the quantum proceedings are still under judicial scrutiny and are debatable.Conclusion:The Tribunal concluded that the penalty order under section 271(1)(c) was not sustainable due to the defective notice and the fact that the issues in the quantum proceedings were debatable. Consequently, the penalty order was quashed, and the appeal of the assessee was allowed. The Tribunal's decision emphasized the necessity for clear and specific charges in penalty notices and recognized the impact of ongoing judicial scrutiny in quantum proceedings on the imposition of penalties.Order Pronounced:The appeal of the assessee was allowed, and the penalty order was quashed. The order was pronounced in the open court on 29th June, 2022.