2017 (3) TMI 23 - AT - Income Tax

Penalty u/s 271(1)(c) - validity of notice - Held that - In the case under consideration, on perusal of the show cause notices issued by the Assessing Officer u/s 274 r.w.s. 271 of the IT Act, 1961, dated 31/12/2008 and 24/10/2011 it is seen that the Assessing Officer did not mention whether the notice is issued for concealment of income or for furnishing of inaccurate particulars of income. Therefore, as per the ratio laid down by the Hon ble Supreme Court in the case of SSA s Emerald Meadows 2016 (8) TMI 1145 - SUPREME COURT the notice issued by the Assessing Officer is not valid and consequently, the order passed u/s 271(1)(c) is also not valid. Hence, we set aside the order of the CIT(A) and quash the order passed by the Assessing Officer u/s 271(1)(c) of the Act. Accordingly, the appeal of the assessee is allowed.

Summary

Issues:
Penalty proceedings under section 271(1)(c) - Validity of notice specifying the grounds for penalty.

Analysis:
The case involved an appeal by the assessee against the order of the Commissioner of Income-tax(A) regarding penalty proceedings under section 271(1)(c) for the assessment year 2006-07. The dispute arose from a survey conducted on the assessee, revealing a difference in the amount invested in land purchase as per impounded material compared to the return of income. The Assessing Officer treated the variance as unexplained income. The CIT(A) and ITAT upheld this addition. Subsequently, penalty proceedings were initiated by the AO, leading to a minimum penalty imposition of ?6,05,880 under section 271(1)(c).

During the appeal before the CIT(A), the assessee contended that the additional amount invested was not undisclosed income, providing explanations and supporting documents. However, the CIT(A) upheld the penalty, emphasizing that the undisclosed payment indicated unaccounted income, further supported by impounded documents. The CIT(A) found the assessee's arguments lacking evidence and confirmed the penalty, citing deliberate inaccurate income particulars and tax evasion strategies.

The assessee challenged the CIT(A)'s decision before the ITAT, raising grounds related to factual and legal errors in confirming the penalty. Additionally, an additional legal ground was admitted regarding the validity of the notice issued under section 271(1)(c). The ITAT considered the Supreme Court's decision in CIT Vs. SSA's Emerald Meadows, emphasizing that a notice must specify the grounds for penalty under the respective sections. As the notice in this case did not specify the grounds, the ITAT held it invalid, consequently setting aside the penalty order and allowing the assessee's appeal.

Ultimately, the ITAT ruled in favor of the assessee, setting aside the penalty imposed under section 271(1)(c) due to the invalidity of the notice issued by the Assessing Officer. The judgment highlighted the importance of specifying the grounds for penalty in the notice, as mandated by legal precedents, leading to the quashing of the penalty order in this case.