2019 (1) TMI 215 - AT - Income Tax

Levy of penalty u/s.271(1)(c) - additional income offered in return of income in response to notice u/s.153A and unexplained capital - Held that - While initiating penalty the AO has not specified any of the charge u/s.271(1)(c). However while passing the order levying penalty the AO has mentioned both the limbs. The relevant extract of penalty order (para No.8) has already been reproduced hereinabove. The Hon ble Karnataka High Court in the case of CIT & Another Vs. Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT held that the assessee should know the grounds which he has to meet specifically.Otherwise the principles of natural justice is offended. On the basis of such proceedings no penalty could be imposed on the assessee. Also see CIT VERSUS SHRI SAMSON PERINCHERY 2017 (1) TMI 1292 - BOMBAY HIGH COURT - Decided in favour of assessee.

Summary

Issues:
Levy of penalty u/s.271(1)(c) of the Income-tax Act, 1961 for assessment years 2009-10 & 2010-11 without specifying the charge for initiating penalty proceedings.

Analysis:

A.Y. 2009-10:
The penalty proceedings for A.Y. 2009-10 were initiated for two additions: additional income declared in response to notice u/s.153A and unexplained capital. The AO failed to specify the charge u/s.271(1)(c) while initiating penalty proceedings but mentioned both limbs of section 271(1)(c) at the time of levying the penalty. This ambiguity in recording satisfaction was held to be contrary to established legal principles by the Hon'ble jurisdictional High Court, leading to the penalty order being deemed invalid. The judgment cited emphasized that penalty imposition must align with the grounds specified during initiation, ensuring the principles of natural justice are upheld.

A.Y. 2010-11:
Similarly, for A.Y. 2010-11, penalty proceedings were initiated for undisclosed investment and interest receipts without specifying the charge u/s.271(1)(c). The AO, while passing the penalty order, mentioned both limbs of section 271(1)(c), indicating a lack of clarity in the initiation process. The judgment highlighted that the Assessing Officer's ambiguity in specifying the charge at the initiation stage and subsequently mentioning both limbs during penalty imposition was contrary to legal precedents. As a result, the penalty proceedings for this assessment year were also set aside, emphasizing the necessity for clear and consistent application of penalty provisions.

In both cases, the appeals of the assessee were allowed, and the impugned orders for A.Y. 2009-10 and 2010-11 were quashed. The judgments underscored the importance of adherence to legal requirements and principles in the levy of penalties under the Income-tax Act, ensuring procedural fairness and clarity in penalty proceedings.