2018 (5) TMI 1863 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - non specification of charge - AO not struck off the inappropriate words in the penalty notice - Addition u/s 68 since the assessee could not satisfactorily explain the loan of Rs. 20, 00, 000/- obtained from Shri Sanjay Mongia - HELD THAT - A perusal of the assessment order shows that the AO at the end of the assessment order has mentioned penalty proceedings u/s 271(1)(c) have separately been initiated . This does not show as to whether the penalty has been initiated for furnishing of inaccurate particulars of income or for concealment of income. As mentioned earlier the Assessing Officer has not struck off the inappropriate words in the penalty notice issued u/s 274 r.w.s. 271 of the I.T. Act. As relying on SSA S EMERALD MEADOWS 2016 (8) TMI 1145 - SUPREME COURT very initiation of penalty proceeding is bad in law since notice issued by the Assessing Officer u/s 274 r.w.s. 271 does not specify under which limb of section 271(1)(c) the penalty proceeding has been initiated i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. - Decided in favour of assessee.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.

Analysis:
The appeal was filed against the order of the CIT(A) confirming the penalty of Rs. 6,83,163 levied by the Assessing Officer under section 271(1)(c) of the Income Tax Act. The Assessing Officer had added Rs. 20,00,000 under section 68 of the IT Act as the assessee could not explain a loan obtained. The penalty proceedings were initiated based on this addition. The main contention was whether the penalty was justified.

The counsel for the assessee argued that the notice issued by the Assessing Officer did not specify under which limb of section 271(1)(c) the penalty proceedings were initiated, citing a Supreme Court decision and Tribunal rulings where penalties were canceled for similar reasons. The counsel contended that since the initiation of the penalty proceedings was flawed, the penalty should be deleted.

The Departmental Representative (DR) argued that the assessee failed to explain the loan transaction, and the Assessing Officer had valid reasons for imposing the penalty, which was upheld by the CIT(A). The DR asserted that the penalty was justified as the assessee concealed income and furnished inaccurate particulars.

Upon review, the Tribunal found that the notice issued by the Assessing Officer did not specify the grounds under which the penalty proceedings were initiated, as required by law. Citing a Karnataka High Court decision, the Tribunal held that the initiation of penalty proceedings without specifying the grounds was unlawful. Therefore, the Tribunal canceled the penalty imposed by the Assessing Officer and confirmed by the CIT(A), in favor of the assessee. The appeal was allowed, and the penalty was deleted.