2019 (2) TMI 660 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - non specification of charge - Held that - In the present case, the A.O. issued show cause notice dated 29.12.2009 which is also mentioned in the penalty order in which A.O. has put the column blank which did not specify under which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing inaccurate particulars of income. Even in the assessment order A.O. did not mention as to under which limb of Section 271(1)(c) of the Act, the penalty have been initiated against the assessee as noted above. Therefore, the show cause notice for levy of the penalty itself is invalid and bad in law and as such the resultant proceedings have been vitiated. Once the assessee challenged the assumption of jurisdiction of the A.O. it would include the validity of the show cause notice which is mandatory before levy of the penalty. Since the notice itself is not legal, therefore, no penalty could be levied against the assessee - decided in favour of assessee.

Summary

Issues Involved:
Levy of penalty under section 271(1)(c) of the I.T. Act, 1961 based on inaccurate particulars and concealed income. Validity of show cause notice specifying the limb of Section 271(1)(c) for initiating penalty proceedings.

Analysis:

Issue 1: Levy of Penalty under Section 271(1)(c)
The appellant, a firm, challenged the penalty under section 271(1)(c) of the I.T. Act, 1961, imposed by the Assessing Officer (A.O.) for concealing income and furnishing inaccurate particulars. The A.O. made additions to the income declared by the appellant, leading to the assessment of higher total income. The penalty proceedings were initiated separately, and the penalty was levied on the concealed income. The Tribunal allowed the appeal for statistical purposes and remitted the matter back to the Ld. CIT(A) for review. The Ld. CIT(A) partially relieved the appellant but confirmed the penalty on the remaining amount.

Issue 2: Validity of Show Cause Notice
The appellant contended that the A.O. did not specify the limb of Section 271(1)(c) under which the penalty was initiated, as required by law. Citing the judgment of the Hon'ble Karnataka High Court and the Supreme Court, the appellant argued that the notice was invalid for not clearly stating the grounds for penalty imposition. The Department argued that this issue was not raised before the lower authorities and should not be considered at this stage.

Judgment:
After reviewing the submissions, the Tribunal found that the penalty was not sustainable due to the invalid show cause notice. Referring to the precedent set by the Hon'ble Karnataka High Court and the Supreme Court, the Tribunal held that the notice must specify the limb of Section 271(1)(c) for penalty initiation, either for concealing income or furnishing inaccurate particulars. As the A.O.'s notice and assessment order failed to specify the grounds for penalty imposition, the Tribunal deemed the notice invalid and the penalty proceedings vitiated. Consequently, the Tribunal set aside the lower authorities' orders and canceled the penalty, ruling in favor of the appellant.

In conclusion, the Tribunal allowed the appeal of the appellant, emphasizing the importance of a valid show cause notice specifying the grounds for penalty under Section 271(1)(c) of the I.T. Act, 1961. The judgment highlighted the necessity for procedural compliance in penalty proceedings to ensure fairness and legality in tax assessments.