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2018 (11) TMI 1548 - AT - Income TaxLevying penalty u/s 271(1)(c) - defective notice - Held that - We have perused the copy of the notice issued u/s 274 r.w.s 271 of the Act; dated 24/11/2016 and find that it reveals that the AO has not deleted the inappropriate words and parts in the relevant paragraph of the notice, whereby it is not clear as to which default has been committed by the assessee; i.e whether it is for furnishing of inaccurate particulars of income or concealing particulars of income that penalty u/s 271(1)(c) of the Act is sought to be levied. 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.
Issues Involved:
1. Validity of the penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act, 1961. 2. Whether the penalty notice issued under Section 274 read with Section 271 was defective. 3. Merits of the levy of penalty under Section 271(1)(c) of the Act. Issue-wise Detailed Analysis: 1. Validity of the Penalty Proceedings Initiated Under Section 271(1)(c) of the Income Tax Act, 1961: The assessee appealed against the order of the Commissioner of Income Tax (Appeals) upholding the penalty of ?26,37,567 levied under Section 271(1)(c) for the Assessment Year 2014-15. The grounds raised included opposition to the penalty on the basis of law, equity, and facts, and the claim that there was no concealment or furnishing of inaccurate particulars of income. Additionally, the assessee argued that the penalty was excessive and sought its reduction. 2. Whether the Penalty Notice Issued Under Section 274 Read with Section 271 was Defective: The assessee filed additional grounds contending that the penalty notice issued under Section 274 read with Section 271 was defective as it did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. This argument was supported by the decision of the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory and the rejection of the Revenue’s SLP by the Hon’ble Apex Court in the case of SSAS Emerald Meadows. The Tribunal admitted this additional ground for adjudication, noting that it went to the root of the matter and could be decided based on the existing material on record. 3. Merits of the Levy of Penalty Under Section 271(1)(c) of the Act: The Tribunal examined the notice issued under Section 274 read with Section 271 and found that the Assessing Officer had not struck off the irrelevant portions, making it unclear whether the penalty was for concealment of income or furnishing inaccurate particulars. The Hon’ble Karnataka High Court in Manjunatha Cotton & Ginning Factory held that such a notice is invalid, and the consequential penalty proceedings are also invalid. The Tribunal also noted similar decisions by co-ordinate benches in other cases and concluded that the penalty proceedings initiated on the basis of a defective notice must be cancelled. Conclusion: The Tribunal held that the notice issued by the AO was invalid due to the failure to specify the nature of the default. Consequently, the penalty proceedings conducted in pursuance of the defective notice were also invalid. The Tribunal deleted the penalty levied under Section 271(1)(c) for the Assessment Year 2014-15 and allowed the additional grounds raised by the assessee. As the basis for the penalty was found invalid, the Tribunal did not adjudicate on the other grounds of appeal regarding the merits of the penalty levy. Final Judgment: The assessee’s appeal for the Assessment Year 2014-15 was allowed, and the penalty levied under Section 271(1)(c) was deleted. The order was pronounced in the open court on November 27, 2018.
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