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2019 (6) TMI 1283 - AT - Income TaxPenalty u/s 271(1)(c) - AO initiated penalty on one limb of section 271(1)(c) and had imposed penalty on another limb - diversified views of Accountant Member and Judicial Member Ld. Accountant Member held that when the AO proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind. He followed decisions in the cases of M/S MANJUNATHA COTTON AND GINNING FACTORY OTHS., M/S. V.S. LAD SONS 2013 (7) TMI 620 - KARNATAKA HIGH COURT , M/S SSA'S EMERALD MEADOWS 2016 (8) TMI 1145 - SC ORDER , CIT v. Samson Perinchery 2017 (1) TMI 1292 - BOMBAY HIGH COURT and Pr. CIT VERSUS SMT. BAISETTY REVATHI 2017 (7) TMI 776 - ANDHRA PRADESH HIGH COURT . Ld. Judicial Member has held that simply not striking off of the inappropriate portions in the notice does not vitiate the u/s 271(1)(c) as invalid. Further, simply by issuing a proceedings for one limb of section 271(1)(c), does not take away the power of the Assessing Officer to pass an order on other limb of the section, the entire provisions cannot be quashed simply on the technical lapses until and unless the same have resulted into failure of justice and denial of the principles of natural justice. He relied on KP MADHUSUDANAN VERSUS CIT 2001 (8) TMI 8 - SUPREME COURT , CIT VERSUS CHANDULAL 1984 (7) TMI 58 - ANDHRA PRADESH HIGH COURT . THIRD MEMBER HELD THAT - In the light of the accepted facts considering the specific questions referred to by the learned Members I am of the considered view that in terms of the judicial precedent available(supra relied by AM) I find that there is no scope of ambiguity. Amongst all these decisions available on the legal issue in favour of the assessee, the sole contrary view referred to by the Revenue is the decision of the hon'ble Andhra Pradesh High Court in the case of CIT v. Chandulal (supra) in favour of the Revenue. I concur with the view expressed by the learned Accountant Member. When the position of law as held by the apex court in Dilip N. Shroff 2007 (5) TMI 198 - SUPREME COURT is considered, it is clear that the decision rendered in the case of CIT v. Chandulal (supra) is no longer good law. Further, It is seen that the decision of the apex court in K. P. Madhusudhanan (supra) has been considered at considerable length and in detail by the latest decision of hon'ble Teleangana and Andhra Pradesh High Court in the case of Pr. CIT v. Smt. Baisetty Revathi ( supra) and decided issue in favour of assessee. Accordingly, ALL questions referred by AM JM are answered in favour of the assessee.
Issues Involved:
1. Legality of penalty under Section 271(1)(c) when initiated for one limb and imposed for another. 2. Applicability of the Supreme Court's decision in K. P. Madhusudhanan v. CIT. 3. Validity of the notice under Section 274 when inappropriate portions are not struck off. Issue-wise Detailed Analysis: 1. Legality of Penalty Under Section 271(1)(c): The primary issue was whether the penalty under Section 271(1)(c) is sustainable when the satisfaction for initiating penalty proceedings is recorded for concealing particulars of income, but the penalty is imposed for furnishing inaccurate particulars of income. The Judicial Member held that such a discrepancy does not make the penalty order illegal, relying on the Supreme Court's decision in K. P. Madhusudhanan v. CIT, which stated that no express invocation of the Explanation to Section 271 is necessary in the notice. However, the Accountant Member disagreed, citing the Karnataka High Court's decision in Manjunatha Cotton and Ginning Factory, which mandates that the grounds for penalty must be specific and clear to the assessee. The Third Member concurred with the Accountant Member, emphasizing that the notice must clearly specify the grounds for penalty to ensure the principles of natural justice are upheld. 2. Applicability of the Supreme Court's Decision in K. P. Madhusudhanan v. CIT: The Judicial Member relied on the Supreme Court's decision in K. P. Madhusudhanan to support the view that the penalty order is valid even if the notice does not explicitly invoke the Explanation to Section 271. The Accountant Member and the Third Member, however, found this reliance misplaced. They referred to the Andhra Pradesh High Court's decision in Smt. Baisetty Revathi, which clarified that K. P. Madhusudhanan does not apply to cases where the issue is whether the assessee was adequately informed of the specific charge against them. The Third Member emphasized that the assessee must be clearly informed whether the penalty is for concealment of income or furnishing inaccurate particulars, as these are distinct charges with different implications. 3. Validity of the Notice Under Section 274: The Judicial Member held that not striking off inappropriate portions in the notice does not invalidate it, as long as the assessee is aware of the penalty proceedings. This view was supported by the Andhra Pradesh High Court's decision in CIT v. Chandulal. The Accountant Member, supported by the Third Member, disagreed, citing the Karnataka High Court's decision in Manjunatha Cotton and Ginning Factory, which mandates that the notice must specifically state the grounds for penalty. The Third Member further emphasized that the notice's ambiguity offends the principles of natural justice, as it does not give the assessee a fair opportunity to defend against the specific charge. Conclusion: The Third Member concluded that the penalty orders were not sustainable as the Assessing Officer had initiated penalty on one limb of Section 271(1)(c) and imposed it on another limb. The decision was in favor of the assessee, emphasizing the need for clear and specific grounds in the penalty notice to uphold the principles of natural justice. The appeals filed by the assessee were allowed, and the penalty orders were set aside.
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