2016 (5) TMI 1452 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - Held that - Show-cause notice issued by the Assessing Officer u/s 274 for the year under consideration not being in accordance with law, the penalty order passed by the Assessing Officer in pursuance thereof is liable to be cancelled being invalid. We accordingly cancel the order passed by the Assessing Officer imposing penalty under section 271(1)(c) - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the penalty order under section 271(1)(c) due to the absence of specific mention in the show-cause notice.
2. Whether the penalty proceedings were initiated for "furnishing inaccurate particulars of income" or "concealing particulars of such income."

Issue-wise Detailed Analysis:

1. Validity of the Penalty Order:
The appeal was filed by the assessee against the confirmation of a penalty of ?3,15,282/- imposed by the Assessing Officer (AO) under section 271(1)(c). The assessee contended that the penalty order was invalid due to the lack of specific mention in the show-cause notice issued under section 274. The show-cause notice did not clearly indicate whether the penalty was for "furnishing inaccurate particulars of income" or "concealing particulars of such income." The Tribunal found that the AO did not strike off the irrelevant portion in the printed form of the notice, making it unclear which charge was being invoked. This was deemed a significant procedural lapse.

2. Specificity in Penalty Proceedings:
The Tribunal referred to the case of Suvaprasanna Bhattacharya vs. ACIT, where a similar issue was addressed, and the penalty order was held invalid by relying on the Hon’ble Karnataka High Court's decision in CIT & Another vs. Manjunatha Cotton & Ginning Factory. The Karnataka High Court emphasized that the notice under section 274 must specifically state whether the penalty is for concealment of income or furnishing inaccurate particulars of income. The court highlighted that using a printed form without striking out the irrelevant parts does not meet the legal requirement and violates the principles of natural justice.

The Tribunal reiterated the principles laid down by the Karnataka High Court, emphasizing that:
- The penalty proceedings should clearly state the grounds for imposing the penalty.
- The assessee should have a clear understanding of the charges to defend against them adequately.
- Initiating penalty proceedings on one ground and imposing a penalty on another is legally unsustainable.
- The show-cause notice must not be vague to avoid offending the principles of natural justice.

Given these principles, the Tribunal concluded that the show-cause notice issued by the AO was defective as it did not specify the grounds for the penalty. Consequently, the penalty order was invalid.

Conclusion:
The Tribunal held that the penalty order under section 271(1)(c) was invalid due to the defective show-cause notice, which failed to specify whether the penalty was for "furnishing inaccurate particulars of income" or "concealing particulars of such income." The appeal by the assessee was allowed, and the penalty order was canceled. The judgment emphasized the necessity for clarity and specificity in penalty proceedings to uphold the principles of natural justice. The order was pronounced in the open Court on May 13, 2016.