2019 (2) TMI 904 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - tax sought to be evaded by the assessee on the ground of furnishing of inaccurate particulars of income - 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) 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:
Levy of penalty u/s 271(1)(c) of the Income Tax Act, 1961.

Analysis:

1. Background of the Case:
The case involved cross appeals by the Revenue and the assessee against the Order by the Commissioner of Income Tax (Appeals)-2, Jalandhar dated 19.8.2015. The main issue was the partial confirmation of the penalty under section 271(1)(c) of the Act.

2. AO's Observations and Addition of Capital Gains:
The Assessing Officer (AO) observed a housing society owning land in Village Kansal, Mohali, and noted the transfer of land to developers. The AO added the capital gains arising from the transfer of land to the assessee's income, leading to a penalty under section 271(1)(c) of the Act.

3. Appeals and Tribunal Decision:
The CIT(A) dismissed the assessee's appeal, and the Amritsar Bench of the Tribunal upheld the AO's findings. Subsequently, the AO levied a penalty of &8377; 41,64,531 under section 271(1)(c) for furnishing inaccurate particulars of income.

4. CIT(A) Decision on Penalty:
The CIT(A) considered the incomplete nature of the transaction and the pending construction work, concluding that the penalty on the Long Term Capital Gains was not justified. The CIT(A) upheld the penalty on the undisclosed Long Term Capital Gains of &8377; 33 lacs.

5. Validity of Penalty Notice:
The Tribunal referred to a Supreme Court judgment and a Karnataka High Court decision emphasizing the importance of specifying the grounds for penalty under section 271(1)(c). The Tribunal found that the penalty notice issued in this case lacked specificity, leading to the cancellation of the penalty.

6. Tribunal's Decision and Dismissal of Appeals:
Based on the legal precedents and the inadequacy of the penalty notice, the Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, canceling the penalty imposed by the AO under section 271(1)(c) of the Act.

In conclusion, the Tribunal's decision highlighted the significance of a clear and specific penalty notice under section 271(1)(c) of the Income Tax Act, emphasizing the need for proper grounds to levy penalties for concealing income or furnishing inaccurate particulars.