2016 (11) TMI 1727 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice u/s 274 - whether it is for concealment of income or for furnishing of incorrect particulars of income? - HELD THAT - In New Sorathia Engg. Co 2006 (1) TMI 71 - GUJARAT HIGH COURT it has been held that where penalty order and order of Commissioner (Appeals) showed that no clear-cut finding had been reached as to whether penalty under section 271(1)(c) was being levied for concealment of particulars of income by assessee or whether any inaccurate particulars of income had been furnished order of penalty could not be sustained. In CIT vs. Smt. Kaushalya 1995 (1) TMI 25 - BOMBAY HIGH COURT has held that The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charges he had to face. In this background quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified. We hold that the notice issued by the AO u/s 274 r.w.s. 271 for the AY 2003-04 for initiating penalty proceeding u/s 271(1)(c) of the Act in the present case is invalid. The order of the CIT(A) directing the AO to impose penalty u/s 271(1)(c) is thus set aside. Appeal filed by the assessee is allowed.

Summary

Issues:
Validity of penalty notice u/s 271(1)(c) - Concealment of income or furnishing inaccurate particulars of income discernibility.

Analysis:
The appeal pertains to the assessment year 2003-04 against the penalty order u/s 271(1)(c) of the Income Tax Act, 1961. The main issue raised by the assessee was the failure of the ld. CIT(A) to discern whether the notice for penalty initiation pertained to concealment of income or furnishing inaccurate particulars of income. The assessee contended that the notice issued by the AO did not clearly specify the grounds for penalty imposition. The assessee relied on legal precedents to support their argument, including the decision of the Hon'ble Karnataka High Court and the ITAT "H" Bench Mumbai.

Upon considering the submissions and examining the penalty notice issued by the AO, the Tribunal observed that the notice did not explicitly state whether the penalty was for concealing income or furnishing inaccurate particulars of income. The Tribunal referred to legal judgments such as CIT vs. Manjunatha Cotton and Ginning Factory, Sanghavi Savla Commodity Brokers (P) Ltd. vs. ACIT, and others to emphasize the importance of clearly stating the grounds for penalty imposition in the notice. The Tribunal highlighted that a clear-cut finding regarding concealment of income or furnishing inaccurate particulars is essential for a valid penalty order.

Citing further legal precedents like CIT v. Manu Engg. Works, New Sorathia Engg. Co vs. CIT, and CIT vs. Smt. Kaushalya, the Tribunal reiterated that vague or ambiguous penalty notices prejudice the assessee's right to a reasonable opportunity to defend against the charges. Consequently, the Tribunal concluded that the penalty notice issued in this case was invalid due to its lack of clarity regarding the grounds for penalty imposition. As a result, the Tribunal set aside the penalty imposed by the ld. CIT(A) and allowed the assessee's appeal.

In the final verdict, the Tribunal held that the notice issued by the AO for penalty initiation under section 271(1)(c) was invalid due to its failure to specify whether it pertained to concealment of income or furnishing inaccurate particulars of income. The Tribunal's decision was based on various legal precedents emphasizing the necessity of clear grounds for penalty imposition in the notice. The Tribunal's ruling resulted in the setting aside of the penalty imposed by the ld. CIT(A) on the assessee, ultimately allowing the appeal in favor of the assessee.