2016 (2) TMI 118 - AT - Income Tax

Penalty order passed u/s 271(1)(c) - Held that - Following the judgment of the Hon ble High Court in case of Manjunatha Cotton & Ginning Factory (2013 (7) TMI 620 - KARNATAKA HIGH COURT ) as well as case of H.Lakshminarayana (2015 (7) TMI 601 - ITAT BANGALORE ), we hold that the orders of levy of penalty u/s 271(1)(c) in all the assessment years are invalid for want of spelling out the specific grounds on which the penalty was sought to be imposed and consequently the penalty imposed is cancelled. - Decided in favour of assessee

Issues Involved:
1. Validity of the penalty order under Section 271(1)(c) of the Income Tax Act.
2. Defectiveness of the show cause notice issued under Section 274.
3. Compliance with principles of natural justice.
4. Application of the judgment in the case of Manjunatha Cotton & Ginning Factory.

Detailed Analysis:

1. Validity of the Penalty Order under Section 271(1)(c):
The primary issue revolves around the imposition of penalties under Section 271(1)(c) of the Income Tax Act for the assessment years 2005-06 to 2008-09. The assessee contended that the penalty orders were invalid as the Assessing Officer (AO) did not comply with the provisions of Section 271(1)(c) regarding the initiation of penalty proceedings. The AO initiated penalty proceedings after a search under Section 132 of the IT Act, which led to the discovery of incriminating documents and the subsequent declaration of additional income by the assessee. The AO levied penalties equivalent to 100% of the tax sought to be evaded.

2. Defectiveness of the Show Cause Notice Issued under Section 274:
The assessee argued that the show cause notices issued by the AO were defective as they did not specifically state whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income." The notices used a standard proforma without striking out the irrelevant clauses, leading to ambiguity. The assessee relied on the judgment of the Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, which mandates that the grounds for penalty must be clearly specified in the notice.

3. Compliance with Principles of Natural Justice:
The assessee claimed that the penalty order violated the principles of natural justice as the AO did not provide a clear and specific reason for the penalty, thereby depriving the assessee of a fair opportunity to contest the proceedings. The Karnataka High Court in the Manjunatha Cotton & Ginning Factory case emphasized that the assessee must be informed of the specific grounds for penalty to ensure a fair hearing.

4. Application of the Judgment in the Case of Manjunatha Cotton & Ginning Factory:
The Tribunal extensively referred to the judgment in the case of Manjunatha Cotton & Ginning Factory, which laid down that the penalty proceedings must be initiated with clear and specific grounds. The Tribunal noted that the AO's failure to specify whether the penalty was for concealment of income or furnishing inaccurate particulars rendered the penalty orders invalid. The Tribunal also cited similar decisions from co-ordinate benches, reinforcing the requirement for clear and specific show cause notices.

Conclusion:
The Tribunal concluded that the penalty orders under Section 271(1)(c) were invalid due to the defective show cause notices, which did not specify the grounds for penalty. The Tribunal held that the defect in the notices was not curable under Section 292BB of the Act and that the assessee was not given a fair opportunity to contest the penalty proceedings. Consequently, the penalties imposed for the assessment years 2005-06 to 2008-09 were cancelled, and the appeals of the assessee were allowed.

← Previous Next →