2019 (1) TMI 350 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - difference between the assessed income and the income as returned by the assessee in the return of income - defective notice - Held that - When the Assessing Officer proposes to invoke the first limb being concealment then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of. the relevant clauses will lead to an inference as to non-application of mind. Hon ble Karnataka High Court in the case of CIT & Another Vs. Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT held that the assessee should know the grounds which he has to meet specifically. Otherwise the principles of natural justice is offended. - Decided in favour of assessee.

Summary

Issues involved:
1. Levy of penalty u/s 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2007-08.
2. Validity of the notice issued by the Assessing Officer for initiating penalty proceedings.
3. Compliance with legal requirements for specifying the nature of default in the penalty notice.

Detailed Analysis:

1. The judgment pertains to the levy of penalty under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2007-08. The Assessing Officer (AO) had initiated penalty proceedings against the assessee simultaneously with the assessment order. Subsequently, the AO imposed a penalty, which was partly upheld by the CIT(A) and a co-ordinate bench of the Tribunal. The Tribunal directed the AO to restrict the penalty to the difference between the assessed income and the income returned by the assessee. The assessee filed miscellaneous petitions and appeals challenging the penalty for both the years 2006-07 and 2007-08.

2. The validity of the notice issued by the AO for initiating penalty proceedings under section 271(1)(c) was a crucial issue. The Hon'ble Karnataka High Court, in a related case, emphasized the importance of the notice specifying the nature of default, i.e., whether it pertains to concealment of particulars of income or furnishing inaccurate particulars of income. The High Court held that a vague notice without specifying the nature of default renders the penalty proceedings invalid.

3. The compliance with legal requirements for specifying the nature of default in the penalty notice was extensively discussed. The High Court's judgment highlighted that penalty proceedings must be based on specific grounds mentioned in section 271(1)(c). The notice should clearly state whether it is for concealment of income or furnishing inaccurate particulars of income. Failure to specify the nature of default in the notice violates the principles of natural justice and renders the penalty proceedings and order invalid. The Tribunal, following the High Court's rulings, held the notice issued by the AO as invalid and consequently deleted the penalty imposed for the assessment year 2007-08.

In conclusion, the judgment focused on the importance of a valid notice specifying the nature of default in penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961. The Tribunal, guided by the decisions of the Hon'ble Karnataka High Court, emphasized the necessity for clarity in the notice to ensure the assessee's right to contest the proceedings and meet the case of the Department effectively. The penalty levied for the assessment year 2007-08 was deleted due to the invalidity of the notice issued by the AO, as it failed to specify the nature of default, thereby violating the principles of natural justice.