2018 (5) TMI 259 - HC - Income Tax

Levy of penalty u/s 271(1)(c) - defect in the notice - assessee contended that the notices issued under Section 274 r/w. Section 271 are vitiated since it did not specifically state the grounds mentioned in Section 271(1)(c) - Held that - All violations will not result in nullifying the orders passed by statutory authorities. If the case of the assessee is that they have been put to prejudice and principles of natural justice were violated on account of not being able to submit an effective reply, it would be a different matter. This was never the plea of the assessee either before the Assessing Officer or before the first Appellate Authority or before the Tribunal or before this Court when the Tax Case Appeals were filed and it was only after 10 years, when the appeals were listed for final hearing, this issue is sought to be raised. Thus on facts, we could safely conclude that even assuming that there was defect in the notice, it had caused no prejudice to the assessee and the assessee clearly understood what was the purport and import of notice issued under Section 274 r/w.Section 271 of the Act. - Decided against the assessee

Summary

Issues Involved:
1. Legitimacy of penalty under Section 271(1)(c) of the Income Tax Act.
2. Accuracy of the appellant's claim for depreciation.
3. Validity of the notice issued under Section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Legitimacy of Penalty under Section 271(1)(c):
The Tribunal confirmed the levy of penalty under Section 271(1)(c) on the grounds that the appellant had concealed particulars of income and furnished inaccurate particulars. The appellant contended that the transaction was entered into bona fide and the irregularities were discovered only during reassessment proceedings. The appellant argued that there was no fraud or negligence on their part and that the explanation provided was neither disproved nor found to lack bona fides. However, the court held that the existence of conditions stipulated in Section 271(1)(c) is crucial for initiating penalty proceedings and that such conditions were evident in the orders of the Assessing Officer and the Appellate Authority. The court agreed with the factual findings of the authorities that the appellant, being a leasing company, should have ensured the existence of the asset before claiming depreciation. The court concluded that the appellant was liable for penalty as they had claimed depreciation on non-existent machinery, thus concealing particulars of income and furnishing inaccurate particulars.

2. Accuracy of the Appellant's Claim for Depreciation:
The Assessing Officer disallowed the depreciation claim on the grounds that the lease transaction with M/s. Prakash Industries Ltd. was a finance transaction and the machinery was not supplied. The appellant admitted before the Appellate Authority that they claimed depreciation on an asset that did not exist, leading to the confirmation of the penalty. The court noted that the appellant had not taken any action against the lessee who allegedly committed fraud, and the entire issue came to light due to a search conducted in the case of Pioneer Engineering Company. The court found that the appellant's explanation was rightly rejected by the authorities, and the penalty was justified as the appellant had not ensured the existence of the asset before claiming depreciation.

3. Validity of the Notice Issued under Section 271(1)(c):
The appellant raised an additional substantial question of law regarding the defect in the notice issued under Section 271(1)(c), arguing that it did not specify the default to be explained. The court examined the notices and found that the relevant columns were marked, indicating that the appellant had concealed particulars of income and furnished inaccurate particulars. The court held that the appellant's contention was liable to be rejected on facts and that this issue could not be considered a question of law in the appellant's case. The court also noted that the appellant had not raised this plea at any earlier stage and that any defect in the notice did not cause prejudice to the appellant. The court concluded that the appellant clearly understood the purport and import of the notice, and principles of natural justice were not violated.

Conclusion:
The court dismissed the appeals, answering the substantial questions of law against the appellant and in favor of the revenue. The additional substantial question of law was rejected on factual grounds and for the reasons set out in the judgment. The court upheld the orders of the Assessing Officer, the Appellate Authority, and the Tribunal, confirming the levy of penalty under Section 271(1)(c).