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2019 (9) TMI 94 - AT - Income TaxPenalty u/s 271(1)(c) - pre-printed notice without striking off the unnecessary portions of the notice - HELD THAT - A.O. while issuing notice U/s 274 r.w.s. 271(1)(c) was vague in so far as notice so issued did not clearly mention the limb on which amount penalty has been initiated i.e. whether for concealment of particulars of income or for furnishing inaccurate particulars of income, thus, found that the A.O. has just issued pre-printed notice without striking off the unnecessary portions of the notice. If the A.O. was of the view that the assessee has concealed the income or furnishing inaccurate particulars of income then he should have deleted or not mentioned the other limb for imposition of penalty i.e. concealing the particulars of income. The above act of the A.O. clearly shows that the entire exercise of initiation of penalty proceedings has been done without application of mind. It is the requirement of law that notice under section 274 should specifically state the grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income; only sending printed form where all the grounds mentioned in Section 271 are mentioned would not satisfy the requirement of law. The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice are violated. On the basis of such proceeding, no penalty could be imposed on the assessee. Therefore, the initiation and imposing of penalty proceedings is wrong, bad in law, invalid and void ab initio in view of judicial pronouncements referred by assessee. For the reasons that now there is a settled law position on the issue that the notice u/s 271 should be specific on imposing of penalty u/s 271 (1) (c) i.e. concealed particulars of income or furnishing inaccurate particulars of income. See CIT Vs. M/s SSA s Emerald Meadows 2015 (11) TMI 1620 - KARNATAKA HIGH COURT or M/S MANJUNATHA COTTON AND GINNING FACTORY OTHS., M/S. V.S. LAD SONS, 2013 (7) TMI 620 - KARNATAKA HIGH COURT - Decided in favour of assessee.
Issues Involved:
1. Legality of the notice issued under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961. 2. Merits of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961. Detailed Analysis: 1. Legality of the Notice Issued Under Section 274 Read with Section 271(1)(c) of the Income Tax Act, 1961: The primary issue raised by the assessee was the validity of the notice issued under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961. The assessee contended that the notice was vague as it did not specify which limb of Section 271(1)(c) was being invoked—whether for "concealment of particulars of income" or "furnishing of inaccurate particulars of income." The Tribunal accepted this additional ground as it was purely legal and went to the root of the issue. The assessee argued that the penalty notice was pre-printed and did not strike off the unnecessary portions, indicating a lack of application of mind by the Assessing Officer (AO). The Tribunal agreed with this contention, stating that the notice should specifically state the grounds for the penalty to satisfy the requirement of law. The Tribunal cited judicial pronouncements, including the Hon'ble Karnataka High Court in the case of CIT Vs. M/s SSA’s Emerald Meadows, which held that a notice that does not specify the limb under Section 271(1)(c) is bad in law. The Tribunal concluded that the penalty proceedings were initiated without proper specification of the grounds, thus violating the principles of natural justice. Consequently, the initiation and imposition of penalty were deemed invalid and void ab initio. 2. Merits of the Penalty Imposed Under Section 271(1)(c) of the Income Tax Act, 1961: On the merits, the assessee argued that no penalty should be levied for additions made under the deeming provisions of Section 2(22)(e) of the Act, which pertained to deemed income and not actual income. The assessee contended that all material facts were disclosed in the return filed, and there was no concealment of income or furnishing of inaccurate particulars. The addition was made under a deeming provision, which the assessee was not well aware of, and thus the penalty should not be invoked. The Tribunal noted that the penalty was levied for furnishing inaccurate particulars of income. However, it found that the AO neither in the assessment order nor in the penalty notice clearly mentioned the specific limb under which the penalty was imposed. The Tribunal emphasized that the AO should have deleted the unnecessary portions of the notice if he believed the assessee had furnished inaccurate particulars of income. The Tribunal also referred to various judicial pronouncements, including the Hon'ble Apex Court in the case of CIT Vs. Reliance Petro Products Ltd., which held that making an unsustainable claim in law does not amount to furnishing inaccurate particulars of income. The Tribunal concluded that the penalty imposed was not justified due to the defect in the notice and the merits of the case. The penalty proceedings were initiated without proper specification of the grounds, and the addition was made under a deeming provision with full disclosure by the assessee. Conclusion: The Tribunal allowed the appeal of the assessee, directing the AO to delete the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961. The order was pronounced in the open court on 19th August 2019.
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