2018 (5) TMI 1167 - HC - Income Tax

Penalty u/s 271(1)(c) - non specification of charge - defective notice - Held that - It cannot be disputed and indeed it is not disputed that Annexure-E notice dated 19.12.2011 has been issued by the assessing officer alleging concealment of particulars of income or furnishing inaccurate particulars of income as ground for initiating proceedings for which purpose the appellant was called upon to appear and defend the proceedings under Section 271 of the Income Tax Act. In the case of similar facts involved in the case of Commissioner Of Income Tax & another Vs. Manjunatha Cotton & Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT held that notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c) i.e., it was for concealment of income or for furnishing of incorrect particulars of income. Thus the Division Bench has laid down that notice of the type which is issued in this case cannot be sustained in law and consequently penalty proceedings would stand vitiated that were based on such notice. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of penalty proceedings under Section 271(1)(c) of the Income Tax Act.
2. Legality of the notice issued under Section 271(1)(c) without specifying the grounds.
3. Justifiability of penalty under Section 271(1)(c) based on variation in closing stock.

Analysis:
1. The appellant, a partnership firm engaged in the business of cashew kernels, filed its income tax return for the assessment year 2009-2010. After notices were issued under Section 142(1) and 143(2), penalty proceedings under Section 271(1)(c) were initiated by the respondent. The appellant contested the proceedings, but the penalty was levied and confirmed by the authorities. The appellant appealed to the Income Tax Appellate Tribunal, which partly allowed the appeal but upheld the penalty. The appellant argued that the notice issued was defective, citing precedents that distinguish between concealment of income and furnishing inaccurate particulars of income.

2. The High Court admitted the appeal to consider substantial questions of law. It was questioned whether the Tribunal was justified in confirming the penalty without clear grounds of concealment or inaccurate particulars of income. The legality of the notice issued under Section 271(1)(c) without specifying the grounds was also challenged. The Court noted that the notice alleged both concealment and furnishing inaccurate particulars without specifying, following precedents that emphasized the need for clarity in penalty proceedings.

3. Referring to previous judgments, the Court emphasized the distinction between concealment of income and furnishing inaccurate particulars. It was held that the notice must specify the grounds under Section 271(1)(c) clearly. The Court found the notice in the present case lacking in specificity, leading to the vitiation of penalty proceedings. Relying on precedent, the Court concluded that the appellant was entitled to succeed, as the authorities had overlooked the crucial aspect of the notice's deficiency. Consequently, the appeal was allowed, and the substantial question of law regarding the notice was answered in favor of the appellant.

Conclusion:
The High Court ruled in favor of the appellant, emphasizing the importance of clear and specific grounds in penalty proceedings under Section 271(1)(c) of the Income Tax Act. The Court highlighted the necessity of distinguishing between concealment of income and furnishing inaccurate particulars, as well as the requirement for notices to explicitly state the grounds for initiating penalties. The judgment underscored the significance of adherence to legal procedures and precedents in tax matters, ultimately leading to the appellant's success in challenging the penalty imposed.