2016 (9) TMI 391 - AT - Income Tax

Penalty u/s 271(1)(c) - Held that - As the notice dt 18-12-2007 issued by the AO U/Sec 274 r/w 271 of the Act does not show on which ground the penalty is sought to be imposed therefore we hold that the order levying penalty is not valid. - Decided in favour of assessee

Summary

Issues Involved:
1. Justification of the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the notice issued under Section 274 of the Income Tax Act, 1961.

Detailed Analysis:

1. Justification of the Penalty Levied under Section 271(1)(c):
The core issue in this appeal is whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in confirming the penalty levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961. The assessee, an individual deriving income from profession and other sources, had filed a return declaring a total income of ?1,47,500. During scrutiny, the AO discovered undisclosed investments in mutual funds amounting to ?13,78,075, leading to an addition of this amount to the assessee's total income. Consequently, penalty proceedings under Section 271(1)(c) were initiated for not disclosing the income. The assessee contended before the CIT(A) that the non-disclosure was due to a lack of awareness of accounting procedures and that the amount was disclosed upon inquiry. However, the CIT(A) upheld the AO's penalty order, leading the assessee to appeal before the Tribunal.

2. Validity of the Notice Issued under Section 274:
During the hearing, the assessee's representative argued that the case is governed by the decision of the Karnataka High Court in CIT & Anr. v. Manjunatha Cotton and Ginning Factory, which mandates that a notice under Section 274 should clearly specify whether the penalty is for "concealment of particulars of income" or "furnishing inaccurate particulars of income." The Tribunal noted that the AO's notice did not strike out the irrelevant part, making it unclear whether the penalty was for concealment or furnishing inaccurate particulars. The Karnataka High Court's ruling emphasized that such ambiguity violates principles of natural justice, rendering the penalty proceedings invalid.

The Tribunal referenced its own decision in Suvaprasanna Bhattacharya Vs. ACIT, which applied the Karnataka High Court's principles and held that penalty orders must be quashed if the notice under Section 274 is defective. The Tribunal reiterated that the penalty proceedings must be initiated and concluded on the same grounds specified in the notice, and any deviation renders the penalty order invalid.

Conclusion:
The Tribunal concluded that the notice issued by the AO under Section 274 was defective as it did not specify the grounds for the penalty. Consequently, following the Karnataka High Court's decision and its own precedent, the Tribunal held that the penalty order dated 15-09-2010 was invalid. The penalty levied under Section 271(1)(c) was thus canceled, and the assessee's appeal was allowed.

Pronouncement:
The order was pronounced in open court on 27/07/2016.