2021 (12) TMI 945 - HC - Income Tax

Penalty levied u/s 271(1)(c) - whether penalty is being levied for concealment or for furnishing of inaccurate particulars of income, the penalty levied consequent to the impugned notice was without jurisdiction and liable to be quashed? - HELD THAT - The assessee cannot be non-suited from raising such a contention that too before a Tribunal, even assuming it is for the first time. This is so because the Tribunal is the last forum which will decide the factual issue. Therefore, assessee cannot be prevented from raising such a contention. We say so because in the case on hand, the assessee is an individual. It may be true that there are other decisions of the various High Courts which have refused to entertain such a ground at the appeal stage, namely the penalty notice was defective. But those decisions are distinguishable on facts and in most of the cases assessee like a big corporate house having a large legal team to advise and therefore, the question of inadvertence can never be pleaded by the assessee. In contrast to the same, the present case in which the assessee before us is an individual. We are of the view that assessee should not be shut out from raising the jurisdictional issue. The Tribunal on going through the record and in particular, the show-cause notice dated 29th December, 2010 has recorded a finding of fact that the irrelevant portions of the show-cause notice has not been struck off and thus prejudiced the assessee from putting forth an effective objection. The Tribunal also rightly took note of the decision in CIT ANR V. MANJUNATHA COTTON AND GINNING FACTORY, 2013 (7) TMI 620 - KARNATAKA HIGH COURT - Thus, we find there is no error in the decision of the Tribunal nor the decision making process for us to interfere with the said order. Accordingly, appeal filed by the revenue is dismissed and the substantial questions of law are answered against the revenue.

Summary

Issues:
1. Challenge to order cancelling penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of notice under Section 274 for penalty imposition.

Issue 1: Challenge to Penalty Cancellation:
The High Court considered the appeal filed by the revenue challenging the order of the Income Tax Appellate Tribunal cancelling the penalty under Section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2007-08. The revenue contended that the assessee did not avail the opportunity to appear before the Appellate Authority, and the penalty was imposed without questioning the validity of the show-cause notice. However, the Court held that the Tribunal had jurisdiction to consider the issue raised by the assessee for the first time regarding the defective notice. The Court emphasized that the Tribunal is the final forum to decide factual issues and that the assessee, being an individual, should not be barred from raising jurisdictional concerns. The Court noted that the show-cause notice was defective as irrelevant portions were not struck off, prejudicing the assessee from presenting an effective objection. The Court referred to a decision of the High Court of Karnataka to support its findings and concluded that there was no error in the Tribunal's decision to cancel the penalty.

Issue 2: Validity of Notice for Penalty Imposition:
The Court examined whether the notice under Section 274 for penalty imposition was defective, as raised by the assessee. The revenue argued that the notice was valid as the relevant entry was indicated with a "tick mark." However, the Court found that the defect pointed out by the assessee regarding the notice was a jurisdictional issue. The Court held that the assessee had the right to raise such a contention before the Tribunal, even if it was raised for the first time, as the Tribunal is the final authority on factual matters. The Court distinguished previous decisions of other High Courts that refused to entertain similar grounds, noting that those cases involved large corporate entities with legal teams, unlike the individual assessee in the present case. The Court upheld the Tribunal's decision, emphasizing that the assessee should not be prevented from raising jurisdictional issues and that the Tribunal's decision-making process was sound.

In conclusion, the High Court dismissed the revenue's appeal and answered the substantial questions of law against the revenue, affirming the Tribunal's decision to cancel the penalty under Section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2007-08.