2017 (2) TMI 1127 - HC - Income Tax

Penalty u/s 271(1)(c) - Whether the notice issued u/s. 274 r.w.s. 271 1 c of the Act in printed form without specifying grounds of initiation of penalty proceeding is valid legal and tenable in law? - Held that - Since in the impugned notice there is no clear indication about the concealment of the particulars of the income nor there is clear indication for furnishing of inaccurate particulars of the income on application of mind. In any case as there is no specific ground hence there would be breach of principles of natural justice and ultimately the order imposing penalty even otherwise also cannot be sustained. Under the circumstances the question formulated needs to be answered in the negative and in favour of the Assessee and against the Revenue.

Issues Involved:
1. Validity of the notice issued under Section 274 read with Section 271(1)(c) of the Income Tax Act.
2. Whether the penalty under Section 271(1)(c) of the Income Tax Act is justified.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued Under Section 274 Read with Section 271(1)(c) of the Income Tax Act:

The primary question for consideration was whether the notice issued under Section 274 read with Section 271(1)(c) of the Income Tax Act in a printed form without specifying grounds of initiation of penalty proceeding is valid, legal, and tenable in law. The Tribunal's impugned order maintained the penalty under Section 271(1)(c) after considering the notice dated 30.12.2010, which stated, "have concealed the particulars of your income or furnished inaccurate particulars of such income."

The appellant relied on the decision of the Karnataka High Court in the case of 'Commissioner of Income Tax vs. Manjunatha Cotton & Ginning Factory' and the subsequent decision in 'Commissioner of Income Tax vs. Shri Muninaga Reddy'. The argument was that the notice was non-specific about the concealment of income or furnishing inaccurate particulars, thus violating principles of natural justice.

The Court reiterated that as per the decision in 'Manjunatha Cotton & Ginning Factory,' a notice under Section 274 must specifically state whether the penalty is for concealment of income or for furnishing inaccurate particulars. Sending a printed form with all grounds mentioned does not satisfy legal requirements. The assessee should know the specific grounds to meet, otherwise, it offends principles of natural justice.

2. Whether the Penalty Under Section 271(1)(c) of the Income Tax Act is Justified:

The Tribunal had observed that the assessee concealed income particulars to the extent of ?22,74,000 and levied a penalty of ?7,65,428 under Section 271(1)(c). The assessee contended that the disclosure was voluntary to buy peace and thus, the penalty was unjustified. However, the CIT(A) and the Tribunal upheld the penalty, referencing the Supreme Court's decision in 'Mak Data Pvt. Ltd. v. CIT,' which stated that voluntary disclosure to buy peace is not a reason to avoid penalty.

The Tribunal's decision was challenged on grounds that the notice did not specify the exact charge against the assessee, leading to a violation of natural justice. The High Court found that the notice was in a standardized form without specific grounds, thus non-compliant with the requirements set by 'Manjunatha Cotton & Ginning Factory.'

The Court concluded that the notice's lack of specificity led to a breach of natural justice. Consequently, the penalty imposed under Section 271(1)(c) was unsustainable. The appeal was allowed, and the orders imposing the penalty were set aside.

Conclusion:

The High Court held that the notice issued under Section 274 read with Section 271(1)(c) must specifically state the grounds of penalty initiation. A standardized form without specific grounds violates principles of natural justice, rendering the penalty order unsustainable. The appeal was allowed, setting aside the penalty imposed.

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