2018 (4) TMI 1553 - AT - Income Tax

Penalty u/s 271(1)(c) - validity of notice - non striking irrelevant portion of notice - Held that - The assessing officer did not strike off the irrelevant column in the notice and made known the assessee whether the penalty was initiated for the concealment of income or for furnishing the inaccurate particulars. In the assessment order also the AO simply recorded that the penalty proceedings u/s 271(1)(c) are initiated separately. Neither in the assessment order nor in the penalty notice the assessing officer has put the assessee on notice for which offence the penalty u/s 271 was initiated. See CIT Vs. SSA s Emerald Meadows 2016 (8) TMI 1145 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the penalty notice issued under Section 274 read with Section 271AAB of the Income Tax Act, 1961.
2. Reduction of penalty from 30% to 10% by the Commissioner of Income Tax (Appeals).

Issue-wise Detailed Analysis:

1. Validity of the Penalty Notice:
The primary issue addressed was the validity of the penalty notice issued to the assessee under Section 274 read with Section 271AAB of the Income Tax Act, 1961. The assessee argued that the notice was ambiguous and did not clearly specify the grounds for initiating the penalty proceedings, rendering it invalid. The assessee cited the judgments of the Karnataka High Court in the cases of CIT vs. Manjunatha Cotton and Ginning Factory and CIT vs. SSA’s Emerald Meadows, which held that a vague penalty notice is void. The Tribunal observed that the notice did not specify whether the penalty proceedings were initiated for concealment of income, furnishing inaccurate particulars, or having undisclosed income within the meaning of Section 271AAB. The Tribunal concluded that the notice was indeed vague and did not meet the requirements of natural justice, as it did not provide the assessee with a clear understanding of the grounds on which the penalty was being levied. Consequently, the penalty order was set aside.

2. Reduction of Penalty by Commissioner of Income Tax (Appeals):
The second issue pertained to the reduction of the penalty from 30% to 10% by the Commissioner of Income Tax (Appeals). The Departmental Representative argued that the notice was issued under Section 274 read with Section 271AAB and was clear in mentioning the proceedings for having undisclosed income. The Department was in appeal against the reduction of the penalty. However, since the Tribunal set aside the penalty order on the grounds of the invalidity of the notice, the appeal filed by the Revenue became infructuous.

In conclusion, the Tribunal allowed the cross-objection of the assessee, setting aside the penalty order due to the invalidity of the notice, and dismissed the appeal of the Revenue as infructuous. The judgment emphasized the necessity for clear and specific grounds in penalty notices to uphold the principles of natural justice.