2016 (6) TMI 1382 - AT - Income Tax

Penalty u/s 271(1)(c) - trading additions made on account of cessation of liability by invoking provisions of section 41(1) - HELD THAT - It is settled proposition of law that the penalty proceedings and quantum proceedings are two different and distinct proceedings. By way of penalty proceedings, the revenue is forcing the tax payer to pay additional amount of tax in addition to the tax assessed and interest charged in the form of penalty for concealment of particulars of his income or furnishing of inaccurate particulars of such income. It is settled position of law that the assessee is to be put to notice for the specific charge. The Hon ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory, 2013 (7) TMI 620 - KARNATAKA HIGH COURT has held that the notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c) as to whether it is for concealment or furnishing inaccurate particulars of income. Notice under section 274 was on the printed format. The AO has not given any specific charge. Therefore, the penalty proceedings as initiated are vitiated for want of procedural compliance. Thus the penalty order is quashed being bad in law. This ground of the assessee is allowed.

Summary

Issues:
1. Validity of penalty order under section 271(1)(c) of the Income Tax Act.
2. Specific charge requirement in penalty notice.
3. Imposition and deletion of penalty.

Analysis:

Issue 1: Validity of penalty order under section 271(1)(c)
The appeal challenged the penalty order under section 271(1)(c) of the Income Tax Act dated 27.03.2012 for Assessment Year 2007-08. The Assessing Officer (AO) imposed a penalty of ?1,65,000 on trading additions made due to the cessation of liability under section 41(1) of the Act. The appellant contended that the penalty order was bad in law as the notice did not specify the specific charge for imposing the penalty. The appellant argued that the AO should have provided a specific reason for the penalty imposition. The Departmental Representative (D/R) supported the penalty order, stating that the charge of furnishing inaccurate particulars and concealing income was specific enough. However, during the proceedings, it was revealed that the notice did not contain a specific charge, which was a procedural flaw. The Tribunal held that the penalty proceedings were vitiated due to the lack of procedural compliance as the notice did not specify the grounds under section 271(1)(c). Consequently, the penalty order was quashed on the grounds of being bad in law.

Issue 2: Specific charge requirement in penalty notice
The appellant argued that the penalty notice did not specify the specific charge, which was a requirement for valid penalty imposition under section 271(1)(c). The Tribunal referred to judicial precedents emphasizing the necessity of a specific charge in the notice to satisfy procedural requirements. The AO's failure to provide a specific charge in the notice rendered the penalty proceedings defective, as highlighted by the Hon'ble Karnataka High Court's decision. The Tribunal concluded that the penalty order was quashed due to the absence of a specific charge in the notice, aligning with the legal principle that the assessee must be informed of the grounds for penalty imposition.

Issue 3: Imposition and deletion of penalty
As the penalty order was quashed on procedural grounds, the Tribunal directed the AO to delete the penalty imposed under section 271(1)(c) of the Act. Ground No. 3 of the appeal, which related to the imposition of penalty, became moot following the quashing of the penalty order. Ground No. 4, a general ground, did not require separate adjudication. Consequently, the appeal of the assessee was partly allowed, with the penalty being deleted due to procedural deficiencies in the penalty notice.

In conclusion, the Tribunal's decision focused on the procedural irregularity in the penalty notice, leading to the quashing of the penalty order under section 271(1)(c) for Assessment Year 2007-08. The judgment underscored the importance of providing a specific charge in the penalty notice to ensure procedural compliance and protect the rights of the assessee during penalty proceedings.