2015 (10) TMI 2164 - AT - Income Tax

Penalty u/s. 271(1)(c) - validity - Held that - In view of the fact that notice u/s. 274 of the Act in the present case does not make any reference as to whether the assessee has concealed or furnished inaccurate particulars of income, the entire penalty proceedings are held to be invalid. Penalty imposed is accordingly cancelled. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of penalty proceedings under Section 271(1)(c) of the Income Tax Act.
2. Specificity required in the notice under Section 274 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act:

The assessee challenged the order of the CIT(Appeals) confirming the penalty imposed by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act. The penalty was imposed due to the denial of the assessee's claim for exemption under Section 54F related to capital gains on the sale of property. The AO initiated penalty proceedings and imposed the penalty on the grounds of either concealment of income or furnishing inaccurate particulars of income.

On appeal, the Tribunal admitted the additional ground raised by the assessee, which questioned the validity of the penalty proceedings based on the defective notice issued under Section 274. The Tribunal emphasized that the issue was a legal question that did not require new fact investigation and could be decided based on the existing record.

2. Specificity Required in the Notice under Section 274 of the Income Tax Act:

The core issue was whether the show-cause notice issued under Section 274 specified the grounds for which the penalty was being levied. The assessee argued that the notice did not specify whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income," making the penalty proceedings invalid.

The Tribunal referred to the Karnataka High Court's decision in CIT & Anr. v. Manjunatha Cotton and Ginning Factory, which laid down principles for imposing penalties under Section 271(1)(c). The High Court emphasized that the notice under Section 274 must clearly state the grounds for penalty to ensure the assessee has a fair opportunity to respond. The practice of issuing a standard form without specifying the grounds was deemed insufficient and a violation of natural justice.

The Tribunal noted that the AO must clearly indicate whether the penalty is for concealment of income or furnishing inaccurate particulars. The High Court's decision outlined that the penalty proceedings must be initiated and concluded on the same grounds specified in the notice. Any deviation or ambiguity in the notice renders the penalty proceedings invalid.

In this case, the Tribunal found that the notice under Section 274 did not specify the grounds for penalty, thus violating the principles laid down by the High Court. Consequently, the penalty proceedings were deemed invalid, and the penalty imposed was canceled.

Conclusion:

The Tribunal allowed the appeal by the assessee, holding that the penalty proceedings were invalid due to the defective notice under Section 274, which failed to specify the grounds for penalty. The decision underscored the necessity for clear and specific notices in penalty proceedings to uphold the principles of natural justice. The penalty imposed under Section 271(1)(c) was consequently canceled, and the appeal was pronounced in favor of the assessee on September 23, 2015.