2023 (11) TMI 983 - AT - Income Tax

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

M/s. Vinayaka Enterprises Versus DCIT Central Circle-2 (1) Bangalore

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 ... Levy of penalty u/s 271(1)(c) - Defective notice u/s 274 - non specification of clear charge - penalty was levied for ‘concealment of income’ when the proceedings were initiated for ‘furnishing inaccurate particulars of income’ - HELD THAT:-Though the ld. AO initiated the penalty for furnishing inaccurate particulars of income, however, he levied the penalty for concealment of income. It is settled principle that whenever ld. AO initiate the levy of penalty either for furnishing inaccurate particulars of income or for concealment of income, he should specify the same and bring to the notice of the assessee so that the assessee would be in a position to give reply to the levy of penalty under which circumstances penalty has been levied. In our opinion, AO has not applied his mind while passing the penalty order and not given fair opportunity of hearing to the assessee to show cause as to why the penalty cannot be levied for concealment of income and since he has initiated the penalty only for furnishing inaccurate particulars of income. This action of the ld. AO cannot be upheld. Penalty should be clear as to the limb for which it is levied and the position being unclear here, the penalty is not sustainable. See Manjunatha Cotton & Ginning Factory [2013 (7) TMI 620 - KARNATAKA HIGH COURT]. Decided in favour of assessee. 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 OrderThe 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.ConclusionThe 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.