2018 (2) TMI 1912 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - non recording any satisfaction - non striking irrelevant portions in notice - HELD THAT - The undisputed facts are that the AO, while framing the assessment under Section 143(3) of the Act initiated penalty proceedings for concealment of income and filing of inaccurate particulars of income, thus thereby initiating penalty proceedings for both the limbs. Similarly, while issuing penalty notice under Section 274 r.w.s. 271(1)(c) of the Act dated 27.12.2010 did not strike off one of the two limbs which was relevant thus the assessee was not appraised of the exact charge on which penalty was proposed to be levied. Thus, we are of the view that it is mandatory on the part of the AO to specify specifically the charge on which penalty is proposed to be levied and non striking of the relevant portion would go to the root of the jurisdiction of the AO to pass penalty order. The case of the assessee is clearly covered by the judgements of the Hon'ble Karnataka High Court in the cases of Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT and M/S SSA S EMERALD MEADOWS 2015 (11) TMI 1620 - KARNATAKA HIGH COURT - Decided in favour of assessee.

Summary

Issues:
Appeal against confirmation of penalty under Section 271(1)(c) of the Income Tax Act, 2016 for assessment years 2008-09 and 2007-08.

Analysis:
1. Legal Issue Raised by Assessee:
The assessee challenged the validity of the penalty order under Section 271(1)(c) on the grounds of a mechanical issuance of notice without recording satisfaction. The Additional Ground of Appeal raised a legal and technical issue, supported by legal precedents, questioning the jurisdiction of the AO to impose the penalty.

2. Admissibility of Additional Ground:
The Tribunal admitted the additional ground for adjudication, considering it a legal issue not requiring further verification of facts. The legal issue raised by the assessee went to the root of the AO's jurisdiction to impose the penalty under Section 271(1)(c) and was relevant for determining the liability of the assessee.

3. AO's Mechanical Issuance of Notice:
The assessee contended that the AO issued the notice mechanically without specifying the limb of penalty imposition, causing a denial of natural justice. Legal arguments and precedents were cited to support the contention that non-striking of irrelevant portions in the notice could lead to penalty deletion.

4. Contentions of the Department:
The Department argued that the AO's intention was clear from the assessment order, where penalty proceedings were initiated on both limbs. They contended that the assessee was provided with full particulars and had the opportunity to respond, thus the non-striking of irrelevant portions did not create ambiguity.

5. Tribunal's Decision:
After considering submissions and legal precedents, the Tribunal held that the AO's failure to specify the charge on which the penalty was proposed to be levied was a serious jurisdictional defect. Citing relevant judgments, including those from the Hon'ble High Courts and the Supreme Court, the Tribunal reversed the penalty order, setting aside the CIT(A)'s decision.

6. Outcome:
Consequently, the appeals filed by the assessee were allowed, and the penalty imposed under Section 271(1)(c) was deleted. The Tribunal's decision was pronounced openly on 14th February 2018.