2019 (2) TMI 365 - AT - Income Tax

Penalty u/s 271(1)(c) - non specification of charge - defective notice - Held that - Notice issued by the AO 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.

Issues Involved:
1. Addition of ?1,00,39,564/- on account of professional charges.
2. Initiation and imposition of penalty proceedings under Section 271(1)(c) of the Income Tax Act.
3. Legality of the penalty proceedings and satisfaction recorded by the Assessing Officer (AO).
4. Specificity of the charge under Section 271(1)(c) in the penalty notice.

Detailed Analysis:

1. Addition of ?1,00,39,564/- on account of professional charges:
The AO completed the assessment for the assessment year 2009-10 and made an addition of ?1,00,39,564/- on account of professional charges paid by the assessee company for availing professional services related to techno feasibility studies on proposed construction projects. This addition was confirmed by the Tribunal 'E' Bench, New Delhi.

2. Initiation and imposition of penalty proceedings under Section 271(1)(c) of the Income Tax Act:
The AO initiated penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961, and passed an order on 31.3.2014, levying a penalty of ?34,12,448/-. This penalty was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].

3. Legality of the penalty proceedings and satisfaction recorded by the Assessing Officer (AO):
The assessee argued that the AO did not record proper satisfaction while completing the assessment proceedings, which is a prerequisite for initiating penalty proceedings under Section 271(1)(c). The Tribunal found that the AO, while completing the assessment, did not record the satisfaction and did not specify under which limb the penalty was imposed—whether it was for inaccurate particulars of income or concealment of income. This lack of specificity rendered the penalty proceedings vitiated and not in accordance with the law.

4. Specificity of the charge under Section 271(1)(c) in the penalty notice:
The Tribunal observed that the penalty notice issued by the AO was ambiguous as it did not specify whether the penalty was for concealment of particulars of income or for furnishing inaccurate particulars. The Tribunal relied on various judicial precedents, including the decisions of the Karnataka High Court in the case of CIT & Ors. vs. M/s Manjunatha Cotton and Ginning Factory and the Supreme Court decision in CIT & Anr. vs. M/s SSA’s Emerald Meadows, which held that such ambiguity in the penalty notice renders it invalid. Consequently, the Tribunal concluded that the penalty in dispute is not sustainable in the eyes of the law.

Conclusion:
In light of the above findings and judicial precedents, the Tribunal canceled the penalty imposed under Section 271(1)(c) of the Income Tax Act. The additional grounds raised by the assessee were admitted, and the appeal was allowed. The other grounds became academic and were not adjudicated. The order was pronounced on 05/02/2019.

← Previous Next →