2019 (2) TMI 156 - AT - Income Tax

Penalty levied u/s.271(1)(c) - defective notice - whether AO has initiated penalty proceedings for concealment of particulars of income or for furnished inaccurate particulars? - Held that - Validity of a notices issued under Section 274 r.w.s. 271 of the Act goes to the root of the jurisdiction to levy a penalty under Section 271 (1) (c) of the Act and can therefore be considered at any stage of the appellate proceedings. Notice issued to the assessee under these Sections, for all the years are typically worded for both the assessees and that for assessment year 2006-07. Guilty of both concealment of income as well as furnishing of inaccurate particulars of income. However, a reading of the above notice clearly show that the word used for linking the two portions is or and not and . An assessee in our opinion has every right to know which alleged default he has to explain. If it is both, it is necessary to mention so, in the notice. Without knowing what is default for which he is being charged, an assessee cannot give explanation. Notice issued by the Assessing Officer under Section 274 read with Section 271(l)(c) to be bad in law as it did not specify which limb of Section 271(l)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of COMMISSIONER OF INCOME TAX -VS- MANJUNATHA COTTON AND GINNING FACTORY (2013 (7) TMI 620 - KARNATAKA HIGH COURT) - Decided in favour of assessee.

Summary

Issues:
Validity of penalty under section 271(1)(c) of the Income Tax Act, 1961 based on notice issued to the assessee, and imposition of interest under section 234A of the Act.

Issue 1: Validity of Penalty under Section 271(1)(c):
The Appellate Tribunal considered the challenge to the penalty levied under section 271(1)(c) of the Income Tax Act, focusing on the vagueness of the notice issued to the assessee. The appellant argued that the notice did not specify the reason for initiating penalty proceedings, whether for concealing income particulars or furnishing inaccurate income particulars. Citing judgments from the Hon'ble Karnataka High Court, the appellant contended that a notice lacking specificity regarding the alleged default was invalid. The Tribunal analyzed the notice issued under Section 274 read with Section 271 of the Act and emphasized the importance of clearly stating the grounds for penalty initiation. Referring to previous judgments, the Tribunal held that the notice must specify the default for which the assessee is charged to enable a proper explanation. The Tribunal relied on precedents to assert that penalty proceedings must be distinct from assessment proceedings, and the grounds for penalty initiation should be clearly communicated to the assessee.

Issue 2: Implication of Previous Judgments:
The Tribunal referred to judgments from the Hon'ble Karnataka High Court and the Hon'ble Apex Court, affirming the necessity of specifying the grounds for penalty initiation in the notice. The Tribunal highlighted the importance of natural justice principles and the assessee's right to know the specific default being alleged. By citing previous cases such as Manjunatha Cotton and Ginning Factory, the Tribunal emphasized that the validity of assessment or reassessment cannot be the subject matter of penalty proceedings. The Tribunal upheld the decision of the Division Bench and dismissed the appeal filed by the Revenue, setting aside the penalty levied on the assessees for the impugned assessment years based on the vagueness of the notice.

Issue 3: Imposition of Interest under Section 234A:
Regarding the imposition of interest under section 234A of the Act, the Tribunal addressed the timing of the notice and the subsequent order passed by the Assessing Officer. The appellant argued that there was insufficient time between the receipt of the show cause notice and the issuance of the order, preventing a proper explanation regarding errors in computing interest. The Tribunal acknowledged the short timeframe between the notice and the order and concluded that the assessees were not given adequate time to respond. Consequently, the Tribunal set aside the orders of the lower authorities and remitted the matter back to the Assessing Officer for a fresh consideration in compliance with the law.

In conclusion, the appeals of the assessees in certain cases were allowed based on the invalidity of the penalty notices, while the appeals in other cases were allowed for statistical purposes. The Tribunal's decision emphasized the importance of clear communication in penalty proceedings and the need for proper timelines and opportunities for response in tax matters.