2015 (8) TMI 919 - AT - Income Tax

Penalty under section 271 1 c - Held that - The order of penalty is bad in law for the reason that the Notice for initiation of penalty as to whether it is concealment of income or furnishing of inaccurate particulars of income is not discernable from the notice issued and consequently the order of penalty passed under section 271 1 c of the Act on an invalid notice does not have any legs to stand and the penalty levied under section 271 1 c of the Act deserves to be deleted, under the facts and circumstances of the case. Issue raised by the assessee in the additional grounds with regard to the validity of the defective notices issued by the Assessing Officer under Section 274 rws 271 of the Act for Assessment Years 2007-08 to 2009-10 in the case on hand is a jurisdictional matter, a pure question of law in respect of a defect in the notice that is not curable in nature. In this view of the matter, we are of the opinion that the additional grounds in this regard are not required to be set aside to the file of the learned CIT (Appeals) as requested by the learned Departmental Representative. The fact that it is clear that the impugned notices under Section 274 rws 271 of the Act dt.29.12.2011 do not have the appropriate portions marked to specify as to whether the penalty is proposed to be levied for concealment of income or for furnishing of inaccurate particulars of income; which fact has not been disputed by Revenue and the defects being not curable, we are of the opinion that in view of the factual and legal reasoning rendered above, there is no requirement for us to set aside the additional ground to the file of the learned CIT (Appeals) for consideration. Since we have cancelled the penalties levied u/s.271(1)(c) of the Act for Assessment Years 2007-08 to 2009-10 in the case on hand on the basis of our adjudication of the preliminary issue of the validity of the defective notices issued under Section 274 rws 271 of the Act dt.29.12.2011 as raised in additional Grounds raised in the other grounds become academice. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.
2. Defectiveness of notices issued under Section 274 read with Section 271 of the Income Tax Act, 1961.
3. Jurisdictional validity of the penalty orders.

Issue-wise Detailed Analysis:

1. Validity of Penalty Proceedings under Section 271(1)(c):
The assessee filed returns for Assessment Years 2007-08, 2008-09, and 2009-10, declaring income from a joint venture. Following a survey under Section 133A, the assessee revised the returns, declaring higher incomes. The Assessing Officer initiated penalty proceedings under Section 271(1)(c) for concealment of income and furnishing inaccurate particulars, leading to penalties for all three years. The CIT (Appeals) confirmed these penalties, prompting the assessee to appeal to the Tribunal.

2. Defectiveness of Notices Issued under Section 274 read with Section 271:
The Tribunal examined the notices issued under Section 274 read with Section 271 and found them defective. The notices did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. The Tribunal referenced the Karnataka High Court's decision in the case of Manjunatha Cotton & Ginning Factory, which mandates that the grounds for penalty must be clearly stated in the notice. The Tribunal concluded that the vague notices violated principles of natural justice and were thus invalid.

3. Jurisdictional Validity of the Penalty Orders:
The Tribunal admitted additional grounds raised by the assessee, challenging the jurisdictional validity of the penalty orders based on defective notices. The Tribunal held that the issue of defective notices is a jurisdictional matter and a pure question of law. It emphasized that defective notices cannot be cured, and any proceedings based on such notices are void ab initio. The Tribunal rejected the Department's request to remand the matter to the CIT (Appeals), stating that the issue was purely legal and did not require further factual investigation.

Conclusion:
The Tribunal found the penalty notices issued under Section 274 read with Section 271 to be defective and invalid. Consequently, the penalties levied for Assessment Years 2007-08 to 2009-10 were canceled. The Tribunal did not adjudicate on other grounds raised by the assessee, as the primary issue of defective notices rendered the penalty orders invalid. The assessee's appeals were allowed, and the penalties were annulled.

Order Pronounced:
The Tribunal pronounced the order in favor of the assessee on 14th August 2015, allowing the appeals for Assessment Years 2007-08 to 2009-10.