Penalty under section 271(1)(c) is invalid if charge is vague

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A Bench of The Income Tax Appellate Tribunal Pune Bench “B”, Pune, comprising of Ms. Sushma Chowla, JM And Shri Anil Chaturvedi, AM had to decide appeals relating to different assessment years against penalty levied under section 271(1)(c) of the Income Tax Act, 1961.

The lead case was Uttam Bhagwanrao Patil & Ors ITA Nos.1718 & 1719/PUN/2017

In the bunch of appeals filed by / against different assessee, the common thread was the issue raised against levy of penalty for concealment under section 271(1)(c) of the Act.

Majorly the appeals were filed by assessee as they are aggrieved by the aforesaid levy of penalty and in some cases, appeals are also filed by Revenue against order of CIT(A) in deleting the same.

In the bunch of appeals, the Assessing Officer while completing assessment proceedings had initiated penalty proceedings for concealment under section 271(1)(c) of the Act.

In some of the assessment orders while recording satisfaction for initiating the aforesaid penalty proceedings, the Assessing Officer has failed to mention the limb on account of which the assessee was held to have erred i.e. whether it is concealment of income or furnishing of inaccurate particulars of income.

In some of the cases, the Assessing Officer while recording satisfaction has initiated penalty proceedings for the default of both i.e. furnishing of inaccurate particulars of income and / or concealment of income.

In some of the cases, the Assessing Officer mentioned that penalty proceedings need to be initiated for furnishing inaccurate particulars of income in view of Explanation (1) to section 271(1)(c) of the Act.

Explanation (1) deals with concealment of income.

In some of the cases, though the Assessing Officer had initiated penalty proceedings for one of the limbs i.e. either for furnishing inaccurate particulars of income or for concealing the income but while levying penalty, the same has been levied on alternate limb i.e. in case the penalty proceedings are initiated for furnishing inaccurate particulars of income but while levying penalty, the Assessing Officer comes to a finding that the same is to be levied for concealment of income or vice-versa.

The Assessing Officer in some cases also levied penalty for default of both of the limbs of section 271(1)(c) of the Act or no limb is mentioned in the penalty order.

The Tribunal had to consider the question that where the Assessing Officer has failed to mention specific charge for initiating penalty proceedings and/or if he has recorded satisfaction for initiating penalty proceedings for non fulfillment of one of the limbs of section 271(1)(c) of the Act and while levying penalty either penalty is levied for the default of both the limbs or there is mention of none of the limbs or there is mention of contrary limb as to what it was initiated for, then whether penalty levied in such cases can be sustained in the eyes of law?

It was noted that the issue stands covered by number of decisions of Pune Bench of Tribunal, wherein this issue has been decided in line with the ratio laid down by the Hon’ble Bombay High Court in CIT Vs. Shri Samson Perinchery (2017) 392 ITR 4 (Bom).

In respect of appeals filed by Revenue, the assessee – respondent has similarly pleaded.

However, the learned Departmental Representative for the Revenue placed reliance on the orders of Assessing Officer / CIT(A) and find justification in the aforesaid levy of penalty for concealment under section 271(1)(c) of the Act.

The Tribunal has already adjudicated the issue in number of cases in turn, relying on the ratio laid down by the Hon’ble Bombay High Court in CIT Vs. Shri Samson Perinchery (supra), wherein it was held that where there is no proper satisfaction for initiating penalty proceedings and in the absence of proper show cause notice to the assessee, there is no merit in levy of penalty.

In the facts of the said case, the Tribunal had deleted penalty imposed under section 271(1)(c) of the Act by holding that initiation of penalty proceedings by Assessing Officer was for furnishing inaccurate particulars of income while the order imposing penalty was for concealment of income.

The grievance of Revenue before the Hon’ble High Court was that there was no difference between furnishing of inaccurate particulars of income and concealment of income.

The Hon’ble High Court held as under:-

“6. The above submission on the part of the Revenue is in the face of the decision of the Supreme Court in T. Ashok Pai v. CIT [2007] 292 ITR 11 (SC) [relied upon in Manjunath Cotton & Ginning Factory (supra)] – wherein it is observed that concealment of income and furnishing of inaccurate particulars of income in section 271(1)(c) of the Act, carry different meanings/connotations.

Therefore, the satisfaction of the Assessing Officer with regard to only one of the two breaches mentioned under section 271(1)(c) of the Act, for initiation of penalty proceedings will not warrant/permit penalty being imposed for the other breach. This is more so, as an assessee would respond to the ground on which the penalty has been initiated/notice issued. It must, therefore, follow that the order imposing penalty has to be made only on the ground of which the penalty proceedings has been initiated, and it cannot be on a fresh ground of which the assessee has no notice.”

9. The Hon’ble Goa Bench of Bombay High Court in a latest decision in the case of Pr.CIT Vs. New Era Sova Mine & Ors. in Tax Appeals Nos.70, 69 of 2018 & 6 of 2019, judgment dated 18.06.2019 applying the ratio laid down in CIT Vs. Shri Samson Perinchery (supra) have also similarly held.

Applying the said principle laid down by the Hon‟ble Bombay High Court in CIT Vs. Shri Samson Perinchery (supra), it transpired that in cases of levy of penalty under section 271(1)(c) of the Act, the Assessing Officer should be clear as to which of the two limbs of said section are attracted or has been contravened and for initiating penalty proceedings give show cause accordingly.

It cannot be the case of Revenue that initiation would be on one limb i.e. for furnishing inaccurate particulars of income and imposition of penalty on the other limb i.e. concealment of income or vice-versa.

The charge against assessee should be clear and specific in order to allow the assessee to meet the case of Revenue of concealing the income or filing inaccurate particulars of income.

In the absence of such show cause notice being issued to the assessee, penalty proceedings cannot stand.

Similarly, while levying penalty, the Assessing Officer should be clear as to which limb of section / charge has not been fulfilled by assessee to make him liable for levy of penalty for concealment of income.

The Tribunal held that coming to present set of appeals, in such scenario, where the Assessing Officer has failed to mention specific charge as to which limb of section 271(1)(c) of the Act has not been fulfilled by the assessee and give proper show cause notice to the assessee in this regard, then the levy of penalty in such circumstances suffers from infirmity.

Similarly where the Assessing Officer has recorded satisfaction in the assessment order as to both limbs of section 271(1)(c) of the Act and initiated penalty proceedings, such order also suffers from infirmity.

Where no charge is mentioned in assessment order, then also for non recording of proper satisfaction, the initiation of penalty proceedings is not as per law and the penalty order passed in such cases thus, cannot be upheld.

Where, in some cases, penalty has been levied for non fulfillment of both limbs of section 271(1)(c) of the Act and / or for one of the limbs for initiating, for other limb for levy and in some cases, no limb is mentioned, such orders levying penalty under section 271(1)(c) of the Act cannot stand in the eyes of law.

The Tribunal accordingly, deleted penalty levied under section 271(1)(c) of the Act.

Consequently, appeals filed by assessee was allowed. Following the same parity of reasoning, the appeals filed by Revenue were dismissed for non fulfillment of conditions laid down in section 271(1)(c) of the Act for recording of satisfaction or levying penalty as per section.

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