2020 (9) TMI 23 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice u/s 274 - whether the assessee is accused of concealment of particulars of any taxable income or it had furnished inaccurate particulars of such income? - HELD THAT - As decided in Nishith Kumar Jain 2016 (3) TMI 642 - ITAT KOLKATA 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 ofM/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. - Decided in favour of assessee.

Summary

Issues:
- Validity of penalty imposition under section 271(1)(c) of the Income Tax Act, 1961 based on show cause notices lacking specificity on grounds of concealment or inaccurate particulars of income.

Detailed Analysis:
The Appellate Tribunal ITAT Kolkata heard the appeals of two assesses against the Commissioner of Income Tax (Appeals)-11 Kolkata's orders upholding penalty imposition under section 271(1)(c) of the Income Tax Act, 1961. The show cause notices issued by the Assessing Officer lacked specificity on whether the penalty was for concealment of income or furnishing inaccurate particulars of income. Citing a previous decision, the tribunal emphasized the importance of clearly stating the grounds for penalty imposition in the notice under section 274 of the Act. The tribunal referred to the principles laid down by the Karnataka High Court, highlighting that penalty proceedings should be initiated based on specific grounds, and the penalty should be imposed only on the grounds mentioned in the notice. The tribunal concluded that the defective show cause notices rendered the penalty imposition invalid, following the decision of the Karnataka High Court. Consequently, the tribunal canceled the penalties imposed on the assesses, emphasizing the necessity of clarity in the notice for penalty imposition.

The tribunal reiterated that penalty under section 271(1)(c) is a civil liability and does not require mens rea for imposition. It emphasized that the conditions for penalty imposition should be discernible from the assessment order or other relevant authorities' orders. The tribunal highlighted that the penalty proceedings should be distinct from assessment proceedings and that the findings in assessment proceedings do not operate as res judicata in penalty proceedings. Additionally, the tribunal emphasized the importance of clearly stating the grounds for penalty imposition in the notice under section 274, as vague notices violate principles of natural justice. The tribunal concluded that the penalty imposition in the present case was unsustainable due to the defective show cause notices and canceled the penalties imposed on the assesses.

In the final decision, the tribunal allowed the appeals of the assesses, directing the Assessing Officer to delete the penalties imposed. The tribunal's detailed reasoning emphasized the necessity of clear and specific grounds for penalty imposition in the notice under section 274 of the Act, ensuring adherence to principles of natural justice and procedural fairness in penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961.