2017 (8) TMI 1456 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - non striking inappropriate words in the notices - Held that - In the instant case the Assessing Officer has not struck off the inappropriate words in the notices issued u/s 274 r.w.s. 271 therefore the notice does not specify under which limb of section 271(1)(c) the penalty proceedings has been initiated i.e. whether for concealment of income or for furnishing of inaccurate particulars of income. Therefore the penalty proceedings become bad in law. We therefore set-aside the order of the ld. CIT(A) and direct the Assessing Officer to cancel the penalty so levied. The appeal filed by the assessee is accordingly allowed.

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act, 1961 - Concealment of income or furnishing inaccurate particulars - Justification for expenses claimed - Nature of default in penalty notice - Validity of penalty proceedings.

Analysis:

1. Penalty under Section 271(1)(c):
The appeal was against the penalty order under section 271(1)(c) of the Income Tax Act, 1961, amounting to ?1,69,497 imposed by the Assessing Officer. The penalty was based on the assessee's inability to justify an expense of ?5,48,534 incurred on Diwali expenses, leading to the addition of the same to the total income. The Assessing Officer initiated penalty proceedings due to the alleged concealment of income or furnishing of inaccurate particulars.

2. Nature of Default in Penalty Notice:
The appellant argued that the notice issued under section 274 r.w.s. 271 did not specify the nature of the default - whether it was for concealment of income or furnishing inaccurate particulars. Citing relevant case law, the appellant contended that the inappropriate words in the notice were not struck off, rendering the notice vague and invalid. The Karnataka High Court's decision in a similar matter was referenced to support the argument.

3. Validity of Penalty Proceedings:
The tribunal noted that the inappropriate words were not struck off in the penalty notice, aligning with the Karnataka High Court's ruling that such notices are bad in law. The tribunal also highlighted that various benches had canceled penalties in similar cases due to the lack of specificity in the notices. Consequently, the tribunal set aside the penalty upheld by the CIT(A) and directed the Assessing Officer to cancel the penalty imposed.

4. Decision and Outcome:
Ultimately, the tribunal allowed the appeal filed by the assessee, concluding that the penalty proceedings were invalid due to the defective penalty notice. The tribunal ordered the cancellation of the penalty levied under section 271(1)(c) against the assessee, emphasizing the importance of specifying the nature of the default in penalty notices to ensure procedural fairness and compliance with legal requirements.

This detailed analysis of the judgment highlights the key legal issues, arguments presented, relevant case law references, and the final decision rendered by the tribunal, providing a comprehensive overview of the case and its implications.