2019 (2) TMI 269 - AT - Income Tax

Penalty u/s 271(1)(c) - non specification of charge - defective notice - Held that - 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 involved:
1. Appeal against order of CIT(A) for Assessment Year 2013-14.
2. Imposition of penalty under section 271(1)(C) of the Income Tax Act, 1961.
3. Clarity requirement in penalty notice regarding concealment of income or furnishing inaccurate particulars.

Detailed Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2013-14, raising various grounds challenging the imposition of penalty under section 271(1)(C) of the Income Tax Act, 1961. The appellant contended that the order was passed hastily without adequate opportunity for being heard and was against the principles of natural justice. The appellant also disputed the imposition of penalty amounting to ?6,44,026, arguing that the Assessing Officer (AO) had failed to prove concealment of income or furnishing of incorrect particulars. Additionally, the appellant challenged the disallowance of interest expenditure under section 36(1)(iii) relating to advanced borrowed funds to wholly owned subsidiaries.

2. The primary issue revolved around the clarity requirement in the penalty notice regarding the nature of the alleged default, i.e., concealment of income or furnishing inaccurate particulars. The appellant argued that the notice issued by the AO did not specify the allegation clearly, citing judgments of the Hon'ble Karnataka High Court emphasizing the necessity for precise grounds in penalty notices. The appellant relied on legal precedents to support the contention that ambiguity in the penalty notice renders the penalty order invalid. In response, the Departmental Representative supported the penalty orders, highlighting the AO's assertion of penalty under section 271(1)(C) for furnishing inaccurate particulars of income in the assessment order.

3. The Tribunal analyzed the submissions and referred to the judgment of the Hon'ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory, which outlined essential principles regarding penalty proceedings. The Tribunal reiterated the importance of clarity in penalty notices, emphasizing that the grounds for penalty must be explicitly stated to ensure compliance with natural justice principles. The Tribunal concluded that the penalty order lacked clarity on the nature of the alleged default, violating the legal requirement specified by the Karnataka High Court judgment. Consequently, the Tribunal upheld the appellant's arguments and quashed the penalty order, citing the inadequacy of the penalty notice in specifying the grounds for penalty imposition.

In conclusion, the Tribunal allowed the appeal, setting aside the penalty imposed under section 271(1)(C) due to the lack of clarity in the penalty notice regarding the nature of the alleged default. The judgment highlighted the significance of precise grounds in penalty notices to uphold principles of natural justice and ensure procedural fairness in penalty proceedings.