2019 (8) TMI 1435 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice - HELD THAT - Carefully gone through the notice issued u/s. 274 r.w.s. 271 narrated in para 4 of this order. As seen from the above notice issued u/s. 274 the AO has not struck out the irrelevant portion of the notice. In other words he has not specified whether he is levying penalty for concealment of particulars of income or furnishing of inaccurate particulars of income. As held by the Karnataka High Court in the case of CIT Anr. vs. M/s. SSA s Emerald Meadows 2015 (11) TMI 1620 - KARNATAKA HIGH COURT that the notice issued by the Assessing Officer u/s. 274 r.w.s 271(1)(c) is to be bad in law as it did not specify which limb of section 271(1)(c) of the Act, the penalty proceedings had been initiated, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. This view was confirmed by the Supreme Court in the same case, i.e., CIT Anr. vs. M/s. SSA s Emerald Meadows 2016 (8) TMI 1145 - SC ORDER We are inclined to hold that the penalty proceedings initiated by the AO is void ab initio and allow the appeal of the assessee.

Summary

Issues Involved:
1. Validity of the penalty levied under section 271(1)(c) of the IT Act, 1961.
2. Denial of natural justice due to non-receipt of notices.
3. Merits of the penalty imposed.
4. Validity of the penalty notice for not specifying the default.

Detailed Analysis:

1. Validity of the Penalty Levied under Section 271(1)(c) of the IT Act, 1961:
The primary issue raised by the assessee was that the Commissioner of Income Tax (Appeals), Kottayam, erred in confirming the penalty levied under section 271(1)(c) by the Income Tax Officer, Ward-4, Kottayam. The assessee contended that the appellate order was passed without giving an effective opportunity of being heard, thereby resulting in a denial of natural justice, rendering the disposal of the appeal invalid.

2. Denial of Natural Justice Due to Non-receipt of Notices:
The assessee argued that at the time of filing the appeal, they were residing in Kanjirappally, but had to move to Kochi by the end of 2008 due to uncontrollable circumstances. Consequently, the notices issued by the Commissioner of Income Tax (Appeals), Kottayam, did not reach the assessee, leading to an ex parte decision. The assessee claimed that they did not receive any of the notices for hearings on 4-9-2015, 19-7-2016, 26-12-2017, and 16-4-2018, likely because the notices were sent to the Kanjirappally address. This resulted in the assessee not having the opportunity to present their case against the penalty levied under section 271(1)(c).

3. Merits of the Penalty Imposed:
The assessee contended that there was no merit in the penalty imposed. The Department relied on an agreement dated 2-3-1995 with a Trust to claim that the assessee made a payment of ?15,00,000 to purchase property in Thiruvananthapuram. However, neither the Assessing Officer nor the Commissioner of Income Tax (Appeals) inquired whether the agreement was fully acted upon or if the property was transferred to the assessee. The assessee maintained that they never purchased the property and were acting on behalf of another person. The Department did not verify the truth, and the assessee argued that they never paid the consideration or became the owner of the property.

The assessee further argued that:
- Proper inquiry could have revealed the actual payer of the money as the payments were made through the bank by someone else.
- The Department did not attempt to verify the pay-in-slips from the banks, which would have identified the actual purchaser.
- The Department unjustly compelled the assessee to prove they did not make the payment, which was impractical.
- Even if the initial payment of ?3,00,000 was made by the assessee, there was no evidence of subsequent payments, and the Department could not prove the remaining payments were made by the assessee.
- The assessee did not have the financial capacity to purchase the property, and a proper inquiry would have revealed this.

4. Validity of the Penalty Notice for Not Specifying the Default:
The assessee raised an additional ground of appeal, arguing that the penalty initiated under section 271(1)(c) was invalid because the notice did not specify the default. The notice mentioned both "concealment of income" and "furnishing of inaccurate particulars of income" without striking off the inapplicable default. The assessee relied on recent judgments from the Karnataka High Court and the Telangana & Andhra Pradesh High Court, which held that such notices are invalid if they do not specify the exact default.

The Tribunal found bona fide reasons for the assessee not raising this additional ground earlier and admitted the additional ground for adjudication. Upon reviewing the notice, the Tribunal noted that the Assessing Officer had not struck out the irrelevant portion, thereby failing to specify whether the penalty was for concealment of income or furnishing inaccurate particulars. Citing the Karnataka High Court's decision in CIT & Anr. vs. M/s. SSA’s Emerald Meadows, which was upheld by the Supreme Court, the Tribunal held that the penalty proceedings were void ab initio.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the penalty proceedings initiated by the Assessing Officer as void ab initio due to the invalid notice under section 274 read with section 271 of the IT Act. Consequently, the Tribunal did not adjudicate the other grounds of appeal raised by the assessee. The appeal was pronounced in the open court on 1-8-2019.