2019 (8) TMI 1270 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - HELD THAT - Notice issued u/s 274 r.w.s. 271 of the Act dated 28.12.10 reveals that the AO has not deleted the inappropriate words and parts of the notice, whereby it is not clear as to the default committed by the assessee, i.e. whether it is concealment of particulars of income or furnishing of inaccurate particulars of income that the penalty u/s 271(1)(c) is sought to be levied. In this regard, we find that the Hon'ble High Court of Karnataka in its order in the case of M/s Manjunatah Cotton Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT relied on by the assessee, has held that such a notice, as has also been issued in the case on hand, is invalid and the consequential penalty proceedings are also not valid. Notice issued under section 274 r.w.s. 271 dated 28.12.10 for A.Y. 2008-09 for initiating penalty proceedings u/s 271(1)(c) in the case on hand is invalid and consequently, the penalty proceedings are also invalid. Penalty for Exemption u/s 10(4)(ii) - assessee had received interest on NRE deposit in the financial year 2007-08 - HELD THAT - We find that the assessee has not offered interest income for tax due to wrong interpretations of the provisions of the Act and not on account of deliberate concealment of income or furnishing inaccurate particulars of such income. The assessee was under bonafide impression that she is a person resident outside India as defined under FEMA. The explanation furnished by the assessee in not disclosing the interest income in the return appears to be quite genuine. We also do not agree with the findings of the authorities below that the explanation furnished by the assessee is not covered by Clause(B) of Explanation-1 to Section 271(1)(c). After examining chronology of events and documents on record, we are satisfied that the explanation furnished by assessee is bonafide and acceptable.

Issues Involved:
1. Legality of the penalty notice issued under Section 271(1)(c) read with Section 274 of the Income Tax Act, 1961.
2. Whether the appellant furnished inaccurate particulars of income.
3. Consideration of the appellant's claim of a bona fide belief of being a Non-Resident under FEMA.
4. The excessiveness and reasonableness of the penalty levied.

Detailed Analysis:

1. Legality of the Penalty Notice:
The assessee challenged the legality of the penalty notice dated 28th December 2010 issued under Section 271(1)(c) read with Section 274 of the Income Tax Act, 1961. The primary contention was that the notice did not specify whether the penalty was for "concealing the particulars of income" or "furnishing inaccurate particulars of income," rendering it vague and invalid. The Tribunal admitted this additional ground for adjudication, emphasizing that legal grounds can be raised at any stage of the hearing if they go to the root of the case. The Tribunal relied on the judgment of the Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, which held that such a vague notice is invalid and the consequential penalty proceedings are also invalid. The Tribunal concluded that the penalty notice in question did not meet the legal requirements, thus invalidating the penalty proceedings.

2. Furnishing Inaccurate Particulars of Income:
The Tribunal examined whether the appellant had furnished inaccurate particulars of income. The assessee argued that the interest on NRE deposits was claimed as exempt under Section 10(4)(ii) of the Income Tax Act based on a bona fide belief of being a Non-Resident under FEMA. The Tribunal found that the assessee's claim was due to a genuine misunderstanding of the law rather than an intention to furnish inaccurate particulars of income. The Tribunal referenced the case of Ramaswamy Senthivel, where a similar issue was adjudicated, and it was held that the explanation furnished by the assessee was bona fide and acceptable.

3. Bona Fide Belief of Non-Resident Status under FEMA:
The Tribunal considered the appellant's claim of a bona fide belief that she was a Non-Resident under FEMA. The appellant contended that the interest income from NRE deposits was claimed as exempt based on this belief. The Tribunal found that the appellant's explanation was genuine and that the non-disclosure of interest income was due to a bona fide misunderstanding of the provisions of the Act. The Tribunal agreed with the findings in the case of Ramaswamy Senthivel that the explanation furnished by the assessee was bona fide and acceptable.

4. Excessiveness and Reasonableness of the Penalty:
Given the findings on the legality of the penalty notice and the bona fide belief of the appellant, the Tribunal did not find it necessary to delve deeply into the issue of the excessiveness and reasonableness of the penalty. The Tribunal concluded that the penalty levied by the Assessing Officer and upheld by the Commissioner of Income Tax (Appeals) was invalid and, therefore, dropped the penalty.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, holding that the penalty notice issued was invalid due to its vagueness. The Tribunal also found that the appellant's claim of a bona fide belief of being a Non-Resident under FEMA was genuine and that there was no deliberate concealment or furnishing of inaccurate particulars of income. Consequently, the penalty levied was dropped, and the appeal was allowed.

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