2015 (12) TMI 1518 - AT - Income Tax

Penalty under section 271(1)(c) - Held that - Respectfully following the decision of the Hon ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory reported in (2013 (7) TMI 620 - KARNATAKA HIGH COURT) we hold that the notice issued under section 274 r.w.s. 271 of the Act dated 30.12.2009 for A.Y. 2007-08 for initiating penalty proceedings under section 271(1)(c) of the Act in the case on hand is invalid and consequently, the penalty proceedings are also invalid. - Decided in favour of assessee

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 for A.Y. 2007-08.

Analysis:

Issue 1: Penalty for Concealment of Income
The appellant, a company engaged in trading and brokerage, filed its return for A.Y. 2007-08, declaring income of Rs. 14,32,310. However, during assessment, an addition of Rs. 45,00,000 was made to the returned income due to a disclosure made by the appellant. The Assessing Officer initiated penalty proceedings under section 271(1)(c) for concealment of income, ultimately levying a penalty of Rs. 16,00,000. The CIT(A) confirmed this penalty. The appellant contended that it cooperated with the department and declared the additional income based on department advice to avoid penalty. The appellant argued that there was no evidence of tax avoidance or efforts by the department to establish concealment, making the penalty unjustified. The appellant further claimed that the circumstances of declaring additional income did not involve concealment or incorrect particulars of income, rendering the penalty unwarranted.

Issue 2: Validity of Penalty Notice
During the appeal, the appellant raised an additional ground challenging the validity of the penalty notice issued under section 274 r.w.s. 271(1)(c) of the Act. The notice did not specify whether the penalty proceedings were for furnishing inaccurate particulars of income or concealment of income. The Tribunal admitted this additional ground for consideration, noting that the notice lacked clarity on the default committed by the appellant. Citing a decision of the Karnataka High Court, the Tribunal held that a notice must specify the grounds for penalty clearly, either concealment or furnishing inaccurate particulars, to afford the assessee an opportunity to contest the proceedings. As the notice in this case was ambiguous, the Tribunal deemed the penalty proceedings invalid, leading to the allowance of the additional ground raised by the appellant.

Conclusion:
The Tribunal allowed the appellant's appeal for A.Y. 2007-08, ruling in favor of the appellant due to the invalidity of the penalty notice issued under section 274 r.w.s. 271(1)(c) of the Act. Since the basis for the penalty levy was deemed invalid, the Tribunal did not adjudicate on the other grounds raised by the appellant against the merits of the penalty under section 271(1)(c).