2017 (9) TMI 1764 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - non specification of charge - Held that - CIT vs. Manjunatha Cotton & Ginning Factory (2013 (7) TMI 620 - KARNATAKA HIGH COURT) notice issued by the AO under s. 274 r/w s. 271(1)(c) was bad in law and it did not specify under which limb of s. 271(1)(c) penalty proceedings had been initiated, i.e., whether for concealment of income or furnishing of inaccurate particulars of income. Hon ble High Court held that matter was covered by the aforesaid decision of Division Bench and therefore, there was no substantial question of law arising for determination. There was no merit in SLP filed by the Revenue and was dismissed by the Hon ble apex Court which goes in favour of the assessee. In the circumstances and facts of the case, the notice has its inception, is bad in law and penalty so levied is directed to be quashed and the AO does not acquire any jurisdiction to levy penalty under s. 271(1)(c) of the Act, therefore the appeal of the assessee for asst. yr. 2010-11 is allowed.

Summary

Issues:
1. Appeal against penalty under section 271(1)(c) for assessment year 2010-11.
2. Appeal against penalty under section 271(1)(c) for assessment year 2011-12.
3. Validity of penalty notice specifying the grounds for penalty imposition.

Analysis:

Issue 1: Appeal against penalty under section 271(1)(c) for assessment year 2010-11:
The appeal in this case arose from the order of the learned CIT(A) confirming the penalty under section 271(1)(c) for an amount of ?11,22,318 due to a mistake by the staff of consultants in not filing the income tax return on time. The appellant argued that reliance was placed on the expertise of the consultants and the penalty should not be levied. The appellant also contended that the penalty was confirmed based on Explanation 3 to section 271(1)(c) without considering that non-compliance before the Assessing Officer did not vitiate the reasonable cause. The Tribunal allowed the appeal of the assessee for the assessment year 2010-11, citing a Supreme Court decision where it was held that the notice issued by the AO did not specify under which limb of section 271(1)(c) penalty proceedings had been initiated, rendering the penalty invalid.

Issue 2: Appeal against penalty under section 271(1)(c) for assessment year 2011-12:
For the assessment year 2011-12, the appeal against the penalty under section 271(1)(c) was dismissed by the Tribunal. Although the order of the learned CIT(A) was found to be reasoned and without infirmity, the Tribunal held that the AO did not have jurisdiction to levy the penalty based on a Supreme Court decision. The appeal of the Revenue for the assessment year 2011-12 was therefore dismissed.

Issue 3: Validity of penalty notice specifying the grounds for penalty imposition:
The Tribunal referred to a decision of the Hon'ble Supreme Court and a Division Bench of the Karnataka High Court, which emphasized the importance of the penalty notice specifying the grounds for penalty imposition under section 271(1)(c). It was held that the notice issued by the AO in this case did not specify the grounds clearly, leading to the quashing of the penalty imposed. The Tribunal concluded that the AO lacked jurisdiction to levy the penalty in both the appeals, resulting in the allowance of the assessee's appeal for the assessment year 2010-11 and the dismissal of the Revenue's appeal for the assessment year 2011-12.

In summary, the Tribunal allowed the appeal of the assessee for the assessment year 2010-11, dismissed the appeal of the Revenue for the assessment year 2011-12, and held the cross-objection as infructuous due to the lack of surviving appeals.