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2021 (12) TMI 761 - AT - Income TaxPenalty u/s 271(1)(c) - defective notice - non striking of irrelevant portion of notice - as argued penalty u/s 274 as defective and does not spell out the grounds on which the penalty was sought to be imposed - HELD THAT - On perusal of the show cause notice issued u/s 274 of the Act it is clear that the same is defective as it does not spell out the ground on which the penalty is sought to be imposed, whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. It can be seen from the copy of the notice proposing penalty u/s 271(1)(c) of the Act, the irrelevant portion has not been strike off. See MANJUNATHA COTTON AND GINNING FACTORY, MANJUNATH GINNING AND PRESSING, VEERABHADRAPPA SANGAPPA AND CO., V.S. LAD AND SONS, G.M. EXPORT 2013 (7) TMI 620 - KARNATAKA HIGH COURT Thus 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. -Decided in favour of assessee.
Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act. 2. Validity of the notice issued under Section 274 of the Income Tax Act. Detailed Analysis: 1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act: The appeal is directed against the order of the CIT(A) dated 27.01.2017, which upheld the imposition of penalty under Section 271(1)(c) for the assessment year 2004-2005. The assessee, a partnership concern engaged in property development, initially declared an income of ?33,412. However, following a search under Section 132 related to M/s. Davanam Jewellery Private Limited, it was found that the assessee had made investments in the erstwhile Minerva Mills. Consequently, a notice under Section 148 was issued, and the assessee declared a revised income of ?70,26,410. The assessment was completed with a total income of ?1,05,26,412, leading to the issuance of a penalty notice under Section 274 and the imposition of a penalty of ?37,64,656 under Section 271(1)(c). 2. Validity of the Notice Issued Under Section 274 of the Income Tax Act: The assessee contested the validity of the penalty notice under Section 274, arguing that it was defective as it did not specify whether the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." This, according to the assessee, rendered the penalty order void ab initio. The Tribunal admitted this additional ground as it was a pure question of law and went to the root of jurisdiction. The Tribunal examined the show cause notice and found it defective, as it did not spell out the specific grounds for the penalty. The Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory had established that a notice under Section 274 must clearly state the grounds for penalty to allow the assessee to contest the proceedings and meet the case of the Department. A vague notice, which does not specify whether the penalty is for concealment or inaccurate particulars, offends the principles of natural justice and cannot sustain a penalty order. The Tribunal also referenced the Karnataka High Court’s decision in CIT vs. SSA’s Emerald Meadows, which held that a penalty notice failing to specify the charge is invalid. The Supreme Court dismissed the SLP against this decision, reinforcing the requirement for clarity in penalty notices. Conclusion: The Tribunal concluded that the show cause notice in the present case was defective as it did not specify the charge against the assessee. Consequently, the imposition of penalty under Section 271(1)(c) could not be sustained. The penalty order was directed to be canceled, and the appeal filed by the assessee was allowed. Order: The appeal filed by the assessee is allowed, and the penalty imposed under Section 271(1)(c) is canceled. This order was pronounced on the 30th day of November, 2021.
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