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2019 (9) TMI 682 - AT - Income TaxPenalty u/s 271(1)(c) - defective notice - disallowance of claim of u/s 43B - whether the assessee has concealed particulars of income or has furnished inaccurate particulars of such income during assessment proceedings? - HELD THAT - Notice issued u/s 274 read with section 271(1)(c) of the Act, extracted above, in order to initiate the penalty proceedings against the assessee goes to prove that the AO himself was not aware / sure as to whether he is issuing notice to initiate the penalty proceedings either for concealment of particulars of income or furnishing of inaccurate particulars of such income by the assessee rather issued vague and ambiguous notice by incorporating both the limbs of section 271(1)(c). When the charge is to be framed against any person so as to move the penal provisions against him/her, he/she is required to be specifically made aware of the charges to be leveled against him/her. Hon ble High Court of Karnataka in case of CIT vs. Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT while deciding the identical issue held that when the AO has failed to issue a specific show-cause notice to the assessee as required u/s 274 read with section 271(l)(c), penalty levied is not sustainable. Thus when the notice issued by the AO is bad in law being vague and ambiguous having not specified under which limb of section 271(1)(c) of the Act, the penalty proceedings initiated u/s 271(1)(c) are not sustainable. Also see M/S SSA'S EMERALD MEADOWS 2016 (8) TMI 1145 - SC ORDER - Decided in favour of assessee
Issues Involved:
1. Legality of penalty under section 271(1)(c) of the Income-tax Act, 1961. 2. Whether there was concealment of income or furnishing of inaccurate particulars of income. 3. Validity of the notice issued under section 274 read with section 271(1)(c) of the Act. Issue-wise Detailed Analysis: 1. Legality of Penalty under Section 271(1)(c) of the Income-tax Act, 1961: The appellant, M/s. Sudhir Transformers Ltd., contested the penalty of ?94,250/- imposed under section 271(1)(c) of the Income-tax Act, 1961, as upheld by the Commissioner of Income-tax (Appeals). The penalty was levied on the grounds of disallowance of ?2,57,569/- related to unpaid Central Sales-tax, late payment of ESI, and Karnataka Sales-tax. The assessee argued that the penalty was unjustified as there was no concealment of income or furnishing of inaccurate particulars. 2. Whether there was Concealment of Income or Furnishing of Inaccurate Particulars of Income: The core issue was whether the assessee concealed particulars of income or furnished inaccurate particulars during the assessment proceedings. The assessee contended that the claim under section 43B of the Act was inadvertent and did not warrant penalty proceedings. The Tribunal noted that the audited balance sheet was filed and accepted by the Revenue, and the disallowance was part of a larger disallowance initially made by the AO. 3. Validity of the Notice Issued under Section 274 Read with Section 271(1)(c) of the Act: The Tribunal examined the notice issued by the AO under section 274 read with section 271(1)(c) of the Act. The notice was found to be vague and ambiguous, failing to specify whether the penalty was for "concealment of particulars of income" or "furnishing of inaccurate particulars of income." This ambiguity was critical as it did not provide the assessee with a clear understanding of the charges, thus violating principles of natural justice. The Tribunal relied on precedents from the Karnataka High Court in CIT vs. Manjunatha Cotton and Ginning Factory, CIT vs. SSA’s Emerala Meadows, and the Delhi High Court in Pr. CIT vs. Sahara India Life Insurance Company Ltd., which held that such vague notices are not sustainable in law. The Karnataka High Court emphasized that the AO must clearly specify the grounds for penalty in the notice, and failure to do so renders the penalty proceedings invalid. Conclusion: The Tribunal concluded that the penalty proceedings initiated under section 271(1)(c) were not sustainable due to the defective notice issued by the AO. The penalty levied by the AO and confirmed by the CIT (A) was ordered to be deleted. Consequently, the appeal filed by the assessee was allowed. Order Pronouncement: The order was pronounced in open court on the 13th of September, 2019.
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