2018 (4) TMI 441 - AT - Income Tax

Penalty levied u/s 271(1)(c) - defective notice - non specification of charge - Held that - The Hon ble Karnataka High Court in the case of M/s Manjunatha Cotton & Ginning Factory in (2013 (7) TMI 620 - KARNATAKA HIGH COURT) has held that a notice issued u/s 274 r.ws 271 of the Act without specifying the nature of default; i.e; whether the notice is issued for concealment of particulars of income or furnishing of inaccurate particulars of income; is invalid and the consequential penalty proceedings/order are also not valid. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the penalty levied under Section 271(1)(c) of the Income-tax Act, 1961.
2. Allegation of concealment or furnishing inaccurate particulars of income.
3. Validity of the notice issued under Section 274 read with Section 271 of the Act.

Issue-wise Detailed Analysis:

1. Validity of the Penalty Levied under Section 271(1)(c) of the Income-tax Act, 1961:
The assessee appealed against the penalty of ?18,00,000 levied under Section 271(1)(c) for the assessment year 2004-05. The primary contention was that the Commissioner of Income-tax (Appeals) [CIT(A)] erred in upholding the penalty as there was neither concealment nor furnishing of inaccurate particulars of income. The assessee argued that the explanation provided was bona fide and that the penalty could not be imposed in the absence of seized material under Section 132, making the assessment under Section 153C invalid.

2. Allegation of Concealment or Furnishing Inaccurate Particulars of Income:
The assessee contended that the penalty under Section 271(1)(c) was unjustified as there was no concealment or furnishing of inaccurate particulars. The additional ground raised by the assessee argued that the penalty notice did not specify the exact charge, i.e., whether it was for concealment of income or furnishing inaccurate particulars, thus violating principles of natural justice.

3. Validity of the Notice Issued under Section 274 read with Section 271 of the Act:
The Tribunal examined the validity of the notice issued under Section 274 read with Section 271. The assessee argued that the notice was defective as it did not specify the nature of the default. The Tribunal referred to the Karnataka High Court's decision in Manjunatha Cotton & Ginning Factory (359 ITR 565), which held that a notice must clearly specify the charge to allow the assessee to prepare an adequate defense. The Tribunal found that the notice issued did not delete the inappropriate words, making it unclear whether the penalty was for concealment of income or furnishing inaccurate particulars.

The Tribunal cited the Karnataka High Court's ruling that a vague notice violates natural justice principles and cannot sustain a penalty. The Tribunal also noted that the Supreme Court dismissed the Revenue’s SLP against the Karnataka High Court's decision in SSAS Emerald Meadows, reinforcing the requirement for clear and specific notices.

Conclusion:
The Tribunal concluded that the notice issued under Section 274 read with Section 271 was invalid due to its vagueness. Consequently, the penalty proceedings based on such a defective notice were also invalid. The Tribunal allowed the assessee's appeal, deleting the penalty levied under Section 271(1)(c) for the assessment year 2004-05. As the basis for the penalty was invalid, the Tribunal did not adjudicate the other grounds of appeal.

Order Pronounced:
The order was pronounced in the open court on 28th March 2018, allowing the assessee's appeal for the assessment year 2004-05.