2018 (12) TMI 1504 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - non specification of charge - defective notice - Held that - Hon ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT observed that the levy of penalty has to be clear as to the limb under which it is being levied. As per Hon ble High Court, where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. In the instant case the AO while levying penalty u/s 271(1)(c) has observed that the assessee has concealed the particulars of his income and has also furnished inaccurate particulars thereof. Thus, he is not specific as to whether the penalty is levied for concealment of income or for furnishing inaccurate particulars of income. - Decided in favour of assessee.

Summary

Issues Involved:
Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

1. Background and Disallowances:
The Assessing Officer disallowed expenses and made additions under different heads, leading to the levy of a penalty of ?32,88,663 under section 271(1)(c) of the Act. The CIT(A) upheld this decision due to the lack of business activity and failure to provide necessary details by the assessee.

2. Legal Precedents and Arguments:
The assessee argued that the penalty notice did not specify the exact charge of concealing income or furnishing inaccurate particulars, citing legal judgments from the Hon'ble Karnataka High Court and Kolkata ITAT. The Supreme Court's dismissal of the revenue's SLP further supported the argument against the penalty.

3. Validity of Penalty Notice:
The Tribunal found that the penalty notice lacked specificity in terms of the charge against the assessee, as it did not clearly indicate whether it was for concealing income or furnishing inaccurate particulars. This lack of clarity was deemed a violation of legal requirements for imposing penalties under section 271(1)(c) of the Act.

4. Legal Principles and Application:
The Tribunal emphasized the importance of clearly specifying the grounds for penalty under section 271(1)(c) to allow the assessee to respond appropriately. Citing previous court decisions, including the Hon'ble Karnataka High Court and the Supreme Court, the Tribunal concluded that the penalty notice in this case demonstrated a lack of application of mind by the Assessing Officer, rendering the penalty unsustainable.

5. Decision and Conclusion:
Based on the legal precedents and the lack of specificity in the penalty notice, the Tribunal canceled the penalty order levied by the Assessing Officer. Following the principles established by the Hon'ble Karnataka High Court, the Tribunal allowed the appeal of the assessee, leading to the cancellation of the penalty of ?32,88,663. The decision was pronounced in court on 17th December 2018 in New Delhi.