2015 (12) TMI 1794 - AT - Income Tax

Penalty u/s 271(1)(c) - non specifying under which limb the Assessing Officer is satisfied for levying the penalty - Defective notice - HELD THAT - The notice issued u/s 274 read with section 271(1)(c) did not specify the limb under which the penalty proceedings has been initiated. Entire penalty proceedings have been initiated on the ground that the notice issued was not in accordance with law. We, therefore, following the case of the Hon ble Karnataka High Court in the case of CIT vs. Manju Natha Cotton and Ginning Factory & Others 2013 (7) TMI 620 - KARNATAKA HIGH COURT hold that the penalty proceedings suffers from grave illegalities. Merely because the addition made by the ld. Assessing Officer has been confirmed by this Tribunal is not conclusive to levy the penalty u/s 271(1)(c) as both the penalty proceedings as well as the quantum proceedings are independent from each other. We, therefore, allow the grounds of appeal filed by the assessee.

Summary

Issues Involved:
Penalty appeal against order of CIT(A) for A.Y. 2007-08 on grounds of legality and factual accuracy, precise charge for penalty order, justification of penalty u/s 271(1)(c).

Analysis:
1. The assessee declared income but failed to provide evidence for cash deposits during assessment, leading to addition of income and initiation of penalty proceedings by the Assessing Officer.
2. The ld. CIT(A) upheld the penalty, stating that the appellant concealed income and failed to substantiate explanations for cash deposits, covering all limbs of section 271(1)(c).
3. The notice for penalty did not specify the charge under which it was issued, violating the requirement of specifying the grounds for penalty initiation as per the law.
4. The ITAT found that the penalty proceedings were based on an improperly issued notice, as the penalty charge was not specified, and quantum proceedings' outcome did not conclusively justify the penalty.
5. Citing a Karnataka High Court case, the ITAT held that penalty proceedings were flawed due to illegalities in the notice, emphasizing the independence of penalty and quantum proceedings.
6. Consequently, the ITAT allowed the appeal, stating that the penalty could not be upheld solely based on the quantum appeal outcome, as penalty and quantum proceedings are distinct.

This detailed analysis of the judgment highlights the issues, arguments, and conclusions reached by the ITAT in the penalty appeal case, focusing on the legal aspects and procedural irregularities involved in the penalty imposition under section 271(1)(c) of the Income Tax Act.