AO must specify exact charge when levying penalty under section 271(1)(c) for concealment versus inaccurate particulars

ITAT Bangalore held that penalty u/s 271(1)(c) was unsustainable due to defective notice u/s 274. The AO initiated proceedings for furnishing inaccurate particulars of income but levied penalty for concealment of income without specifying the clear charge. The tribunal ruled that AO must specify the exact limb under which penalty is levied and provide fair opportunity to the assessee to respond. Since the charge was unclear and proper procedure not followed, penalty was deleted in favor of the assessee.

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Issues Involved:
1. Legality of the penalty order under section 271(1)(c) of the Income-tax Act, 1961.
2. Whether the penalty was levied for "concealment of income" or "furnishing inaccurate particulars of income."

Summary:

Issue 1: Legality of the Penalty Order
The assessee challenged the penalty order on the grounds that it was illegal and opposed to the principles of natural justice. The assessee argued that the penalty was levied for "concealment of income" while the proceedings were initiated for "furnishing inaccurate particulars of income," rendering the satisfaction of the AO under section 271(1)(c) void.

The Tribunal admitted the additional ground raised by the assessee, relying on the judgment of the Hon'ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383 (SC), stating that no fresh facts needed investigation and the action of the assessee was bona fide.

Issue 2: Penalty for "Concealment of Income" vs. "Furnishing Inaccurate Particulars of Income"
The Tribunal noted that the AO initiated penalty proceedings for "furnishing inaccurate particulars of income" but levied the penalty for "concealment of income." This discrepancy was highlighted by the assessee, arguing that such action is illegal as per various judicial precedents.

The Tribunal cited several cases, including CIT v Samson Perinchery (2017) 392 ITR 4 (Bombay), Kansara Bearings Ltd vs. ACIT (2013) 35 taxmann.com 188 (Jodhpur-Trib), and CIT v Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565 (Karnataka), which held that penalty proceedings must be initiated and concluded on the same grounds.

The Tribunal observed that the AO's action of initiating penalty for one limb and concluding it on another limb is bad in law and offends the principles of natural justice. The Tribunal emphasized that the AO must specify the grounds for penalty clearly to allow the assessee to defend themselves adequately.

Conclusion
The Tribunal quashed the penalty orders for both assessment years 2015-16 and 2016-17, stating that the penalty should be clear as to the limb for which it is levied. The Tribunal allowed the appeals of the assessee, rendering the adjudication of penalties on merits an academic exercise.

Order pronounced in the open court on 30th Aug, 2023.

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