2016 (12) TMI 1902 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - addition on account of purchase of NSC and saving bank interest - Defective notice u/s 274 - non specification of clear charge - HELD THAT - A show cause notice u/s. 274 of the Act was issued. The Assessing officer has not stated specifically whether the show cause is for concealment of income by the assessee or furnishing of inaccurate particulars of income. Therefore following case of Suvaprasanna Bhatracharya 2015 (12) TMI 43 - ITAT KOLKATA thus hold that the order imposing penalty is invalid and consequently the imposition of penalty is deleted. Decided in favour of assessee.

Summary

Issues Involved:
- Confirmation of penalty levy under Section 271(1)(c) of the Income Tax Act.
- Validity of the notice issued under Section 274 read with Section 271(1)(c) of the Income Tax Act.
- Application of principles laid down by higher judicial authorities regarding penalty notices.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty Levy under Section 271(1)(c):
The primary issue in this appeal was whether the penalty of Rs. 56,285/- levied under Section 271(1)(c) of the Income Tax Act was justified. The Assessing Officer had made an addition of Rs. 1,82,146/- to the assessee's income on account of the purchase of NSC and savings bank interest, subsequently imposing the penalty for concealment of income. The CIT(A) upheld this penalty, leading to the appeal.

2. Validity of the Notice Issued under Section 274 read with Section 271(1)(c):
The assessee argued that the notice issued under Section 274 was defective as it did not clearly specify whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income." The notice used a printed form without striking out the irrelevant part, which led to ambiguity. The assessee's representative relied on the decision in Suvaprasanna Bhatracharya vs. ACIT, where it was held that such vagueness in the notice violates the principles of natural justice.

3. Application of Principles Laid Down by Higher Judicial Authorities:
The Tribunal referred to several precedents, particularly the Karnataka High Court's decision in CIT vs. Manjunatha Cotton and Ginning Factory, which emphasized that a notice under Section 274 should specifically state the grounds for the penalty. The principles highlighted include:
- The necessity for the notice to clearly indicate whether the penalty is for concealment of income or furnishing inaccurate particulars.
- The requirement that penalty proceedings must be initiated and concluded on the same grounds.
- The invalidity of imposing a penalty based on ambiguous or non-specific notices.

The Tribunal found that the notice in the present case was similarly defective, as it did not specify the exact charge against the assessee, thus violating the principles of natural justice.

Conclusion:
Based on the defective nature of the notice under Section 274, the Tribunal held that the penalty order was invalid. The Tribunal followed the precedent set by the Karnataka High Court and other judicial authorities, concluding that the imposition of the penalty could not be sustained. Consequently, the penalty was deleted, and the appeal filed by the assessee was allowed.

Order Pronouncement:
The order was pronounced in the open court on 8/12/2016 in the presence of the parties, thereby concluding the judgment in favor of the assessee.