2018 (3) TMI 1708 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - non specification of default - Held that - A reading of the otice clearly show that the word used for linking the two portions is or and not and . An assessee in our opinion has every right to know which alleged default he has to explain. If it is both it is necessary to mention so in the notice. Without knowing what is default for which he is being charged an assessee cannot give explanation. See SSA s Emerald Meadows 2016 (8) TMI 1145 - SUPREME COURT . Thus we hold that the notice issued under section 271 read with section 274 is invalid and therefore penalty imposed by the Assessing Officer is cancelled. - Decided in favour of assessee

Summary

Issues:
Validity of notice under Section 274 r.w.s. 271 of the Income Tax Act for levy of penalty.

Analysis:
The appellant contested the penalty imposed for the assessment years, arguing that the notice issued by the Assessing Officer was legally flawed as it did not specify the reason for initiating penalty proceedings. The appellant's representative highlighted that the notice did not clarify whether the penalty was for concealing income or furnishing inaccurate particulars. Citing judgments of the Karnataka High Court, the representative argued that an invalid notice renders the penalty invalid. The Department, however, contended that the notice was valid as the appellant was guilty of both offenses.

Upon reviewing the contentions, the Tribunal emphasized that the validity of the notice is crucial for the jurisdiction to levy a penalty and can be challenged at any stage. The notice issued lacked specificity regarding the alleged default, failing to distinguish between concealment of income and furnishing inaccurate particulars. The Tribunal noted that the conjunction "or" was used in the notice, indicating the need for clarity on the alleged default. Referring to previous judgments, the Tribunal highlighted the importance of an assessee knowing the specific grounds for penalty imposition.

The Tribunal referenced the decision in the case of Manjunatha Cotton and Ginning Factory, where it was established that the notice must specify whether the penalty is for concealment of income or furnishing incorrect particulars. The Tribunal reiterated that penalty proceedings are distinct from assessment proceedings and must be based on specific grounds known to the assessee. The Tribunal concluded that the notices issued were invalid, leading to the setting aside of the penalty orders for the relevant assessment years.

In light of the above analysis, the Tribunal allowed the appeals of the assessee for both years solely on legal grounds, emphasizing the necessity of a valid notice specifying the grounds for penalty imposition. The judgment highlighted the importance of clarity in notice issuance to ensure fairness and adherence to natural justice principles in penalty proceedings.

This detailed analysis of the judgment underscores the significance of a valid notice under the Income Tax Act for imposing penalties, emphasizing the need for specificity regarding the alleged default to uphold the principles of natural justice and fairness in legal proceedings.