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2020 (2) TMI 90 - AT - Income TaxPenalty u/s 271(l)(c) - Defective notice - AO has not struck off the irrelevant clause of the notice - HELD THAT - Following the decisions rendered in the cases of CIT vs. Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT , CIT vs. SSA s Emerald Meadows 2016 (8) TMI 1145 - SC ORDER and Pr. CIT vs. Sahara India Life Insurance Company Lt d. . 2019 (8) TMI 409 - DELHI HIGH COURT we are of the considered view that when the notices issued by the AO are bad in law being vague and ambiguous having not specified under which limb of section 271(1)(c) of the Act, AO has moved the law into motion, the penalty proceedings initiated u/s 271(1)(c) are not sustainable. Not only this even at the time of initiating the penalty proceedings the Assessing Officer has not applied his mind and as such was not aware enough as to whether he is initiating the penalty proceedings for concealment of particulars of income or for furnishing inaccurate particulars of income rather sought to initiate the penalty against the assessee in a mechanical manner - Decided in favour of assessee.
Issues Involved:
1. Sustaining the penalty imposed under Section 271(1)(c) of the Income Tax Act. 2. Non-appreciation of facts regarding double taxation. 3. Non-adjudication of specific grounds raised before the Commissioner of Income Tax (Appeals). 4. Validity of the penalty order due to defects in the show cause notice under Section 274 read with Section 271. Issue-wise Detailed Analysis: 1. Sustaining the Penalty Imposed under Section 271(1)(c) of the Income Tax Act: The appellant contested the penalty of ?4,21,344/- imposed under Section 271(1)(c) of the Income Tax Act. The penalty was based on the assessment order that included additions for disallowance of credit card expenses and deemed dividend. The Tribunal noted that the Assessing Officer (AO) did not specify whether the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." This ambiguity in the penalty notice rendered the penalty proceedings unsustainable. The Tribunal referenced judgments from the Karnataka High Court and the Delhi High Court, which held that vague and ambiguous notices under Section 274 read with Section 271(1)(c) are invalid. 2. Non-Appreciation of Facts Regarding Double Taxation: The appellant argued that the Commissioner of Income Tax (Appeals) erred in not appreciating the facts of the case, particularly regarding the issue of double taxation. However, the Tribunal focused on the procedural defects in the penalty notice and did not delve deeply into the merits of this issue. The primary reason for setting aside the penalty was the defective notice, rather than a detailed examination of double taxation claims. 3. Non-Adjudication of Specific Grounds Raised Before the Commissioner of Income Tax (Appeals): The appellant claimed that the Commissioner of Income Tax (Appeals) failed to adjudicate Ground Nos. 2 and 3 raised before him. The Tribunal did not specifically address this procedural lapse but implicitly accepted the appellant's contention by allowing the appeal based on the defective penalty notice. 4. Validity of the Penalty Order Due to Defects in the Show Cause Notice Under Section 274 Read with Section 271: The Tribunal scrutinized the show cause notice issued under Section 274 read with Section 271(1)(c). It found that the notice was vague and did not specify whether the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." Citing precedents from the Karnataka High Court and the Delhi High Court, the Tribunal held that such vague notices violate principles of natural justice and are not legally sustainable. The Tribunal emphasized that the AO must clearly specify the grounds for penalty in the notice, allowing the assessee to adequately prepare a defense. Conclusion: The Tribunal allowed the appeal, setting aside the penalty imposed under Section 271(1)(c) due to the defective and ambiguous show cause notice. The decision underscored the importance of specificity and clarity in penalty notices to uphold the principles of natural justice. The appeal was allowed, and the penalty was ordered to be deleted.
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