2019 (8) TMI 354 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - HELD THAT - Show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. Following the decision M/S MANJUNATHA COTTON AND GINNING FACTORY OTHS., M/S. V.S. LAD SONS, 2013 (7) TMI 620 - KARNATAKA HIGH COURT we hold that the orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled. Levy of penalty in the present case cannot be sustained. We therefore cancel the orders imposing penalty on the Assessee and allow the appeal by the Assessee. In view of our above conclusions on the issue of defect in show cause notice u/s.274 of the Act, we are not dealing with the other arguments made on merits of the orders imposing penalty on the assessee - Decided in favour of assessee.

Summary

Issues:
Appeal against penalty imposition under section 271(1)(c) of the Income Tax Act, 1961 for assessment years 2009-10 & 2010-11.

Analysis:
The key issue in this case revolves around the correctness of the penalty imposition under section 271(1)(c) of the Income Tax Act, 1961. The Appellant challenged the penalty orders issued by the Assessing Officer, contending that the penalty notices did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. Citing a decision by a co-ordinate bench, it was argued that the absence of such specificity in the notice renders the penalty invalid. The Hon'ble Karnataka High Court's ruling emphasized the importance of clearly stating the grounds for penalty imposition in the notice under section 274, distinguishing between concealment of income and furnishing inaccurate particulars. The Court highlighted that penalty proceedings should be initiated based on specific grounds and any deviation would violate principles of natural justice.

Furthermore, the Court outlined principles to be followed in imposing penalties under section 271(1)(c), emphasizing that the Assessing Officer must clearly identify the grounds for penalty imposition in the notice. It was clarified that penalties should only be imposed based on the grounds specified in the notice, and any subsequent discovery of facts cannot validate an improperly imposed penalty. The Court stressed that the initiation of penalty proceedings must align with the grounds identified in the notice, ensuring fairness and adherence to natural justice principles.

In conclusion, the Court held that the penalty imposition in the present case was unsustainable due to the defective show cause notice under section 274, which failed to specify the grounds for penalty imposition. Consequently, the Court canceled the penalties imposed on the Assessee, allowing the appeals. The detailed reasoning provided by the Court highlighted the necessity of clear and specific grounds for penalty imposition, ensuring procedural fairness and adherence to legal requirements. The Assessing Officer was directed to delete the penalties in question, emphasizing the importance of procedural clarity and adherence to legal standards in penalty proceedings.

Overall, the judgment underscores the significance of providing clear and specific grounds for penalty imposition, ensuring fairness, and upholding principles of natural justice in tax penalty proceedings. The decision serves as a reminder of the procedural requirements and legal standards that must be met in penalty imposition under the Income Tax Act, emphasizing the importance of clarity and specificity in penalty notices to safeguard the rights of taxpayers.