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2017 (3) TMI 1576 - AT - Income TaxLevying of penalty u/s 271(1)(c) - defective notice - Held that - In the notice dt.31.12.2009 issued u/s 274 of the Act AO has not struck off the inapplicable portion i.e. as to whether it was the case of concealment of particulars of income or furnishing of inaccurate particulars of income. We further find that in the penalty order passed u/s 271(1)(c) AO has recorded the satisfaction by stating that assessee has furnished inaccurate particulars of income and that Ld. CIT(A) while confirming the penalty order has concluded that it was a case of concealment as well as furnishing of inaccurate particulars of income. Thus from the perusal of notice issued u/s 274 r.w.s 271(1)(c) it is seen that AO is not clear as to under what charge penalty has to be levied u/s 271(1)(c) of the Act as the notice is vague as it fails to clearly spell out the charge of levy of penalty. - Decided in favour of assessee.
Issues Involved:
1. Validity of the penalty levied under Section 271(1)(c) of the Income Tax Act. 2. Whether the change in the head of income constitutes concealment of income or furnishing inaccurate particulars of income. 3. Application of legal precedents and proper issuance of notice under Section 274 r.w.s. 271(1)(c). Detailed Analysis: 1. Validity of the Penalty Levied under Section 271(1)(c): The core issue is the validity of the penalty levied under Section 271(1)(c) of the Income Tax Act. The assessee argued that the penalty was not justified as there was no concealment of income or furnishing of inaccurate particulars. The penalty was levied because the Assessing Officer (AO) reclassified the income from "long term capital gains" to "income from other sources," which the assessee contended was merely a change in the head of income and did not amount to concealment or furnishing of inaccurate particulars. 2. Change in the Head of Income: The assessee's main contention was that the AO merely changed the head of income under which the income was declared without altering the quantum of assessed income. The AO treated the transaction of purchase and sale of shares as a sham transaction, thus reclassifying the income. The AO and CIT(A) held that the assessee's claim was not genuine and that the assessee used the transaction to convert unaccounted money into accounted funds. The CIT(A) noted that the assessee's argument would have been valid if the issue was purely interpretative of law, but in this case, it was based on factually incorrect claims. 3. Application of Legal Precedents and Proper Issuance of Notice: The assessee cited several legal precedents, including the case of Reliance Petroproducts and decisions of the Pune Tribunal, to argue that mere rejection of a claim does not justify the levy of penalty. However, the CIT(A) distinguished these cases on the grounds that the AO’s action was based on factual findings rather than a difference in legal interpretation. The assessee also raised an additional ground regarding the validity of the penalty notice issued under Section 274 r.w.s. 271(1)(c), arguing that the notice was vague and did not specify the charge clearly, thus reflecting non-application of mind by the AO. The Tribunal found merit in this argument, noting that the AO did not strike off the inapplicable portion of the notice, making it unclear whether the penalty was for concealment of income or furnishing inaccurate particulars. The Tribunal referenced the decisions in the cases of CIT Vs. Samson Perinchery and CIT Vs. Manjunatha Cotton and Ginning Factory, which held that such vague notices are invalid. Conclusion: The Tribunal concluded that the penalty proceedings were vitiated due to the invalid notice issued under Section 274 r.w.s. 271(1)(c). The AO's failure to clearly specify the charge in the penalty notice rendered the penalty order invalid. Consequently, the Tribunal set aside the penalty order and allowed the appeal of the assessee. Judgment: The appeal of the assessee was allowed, and the penalty order was set aside due to the invalidity of the notice issued under Section 274 r.w.s. 271(1)(c). The Tribunal emphasized the necessity for clear and specific charges in penalty notices to uphold the validity of such proceedings.
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