2016 (8) TMI 1556 - AT - Income Tax

Penalty u/s. 271(1)(c) - Defective notice u/s 274 - assessee argued that AO had merely ticked the portion of concealment of income or furnishing of inaccurate particulars of income without making specific charge on the assessee to respond - HELD THAT - A the show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. Following the decision of MANJUNATHA COTTON AND GINNING FACTORY MANJUNATH GINNING AND PRESSING VEERABHADRAPPA SANGAPPA AND CO. V.S. LAD AND SONS G.M. EXPORT 2013 (7) TMI 620 - KARNATAKA HIGH COURT which has been followed in the aforesaid tribunal decisions we hold that the order imposing penalty in the assessment year 2007-08 have to be held as invalid and consequently penalty imposed is cancelled. For the reasons given above we hold that levy of penalty in the present case cannot be sustained. We therefore cancel the orders imposing penalty on the Assessee and allow the appeal by the Assessee

Summary

Issues:

1. Justification of confirming penalty u/s. 271(1)(c) of the Act in the sum of ?44,17,390.

Analysis:

Issue 1: Justification of Confirming Penalty

The appeal by the assessee arose from the order of CIT(A) confirming the penalty u/s. 271(1)(c) of the Income Tax Act, 1961. The case involved a search and seizure operation under section 132(1) of the Act, where various monetary transactions were found and recorded at the assessee's residence. The assessee admitted that many of these transactions were not recorded in regular books of accounts. The Assessing Officer (AO) issued a notice calling for an explanation as to why penalty should not be imposed. The assessee contended that the disclosed amount was based on the peak amount and there was no willful neglect or falsification of evidence. However, the AO imposed a penalty of ?44,17,390, which was 100% of the tax as per section 271(1)(c) of the Act. The CIT(A) upheld the penalty, stating that the undisclosed income was deemed concealed or inaccurate as per Explanation 5A. The assessee argued that the penalty notice did not specifically charge the offense committed, as required by law. The Tribunal noted that the penalty proceedings are separate from assessment proceedings and that the AO failed to specify whether the penalty was for concealing income or furnishing inaccurate particulars. Citing relevant case laws, the Tribunal held the penalty order invalid due to the defective show cause notice. Consequently, the penalty imposed was canceled, and the appeal by the assessee was allowed.

In conclusion, the Tribunal found the levy of penalty unsustainable due to the defective notice, leading to the cancellation of the penalty orders and allowing the appeal by the assessee. The judgment emphasized the importance of specific charges in penalty notices and highlighted the distinction between penalty and assessment proceedings.

This detailed analysis provides a comprehensive understanding of the judgment, outlining the issues involved and the Tribunal's reasoning behind the decision to cancel the penalty imposed on the assessee.