2022 (5) TMI 838 - AT - Income Tax

Penalty u/s. 271(1)(c) - Defective notice u/s 274 - non specification of clear charge - HELD THAT - Karnataka High Court CIT vs. Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT held that notice under section 274 should specifically state the grounds mentioned in section 271(1)(c) of the Act, i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income. Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy requirement of law. In the present case since the AO has not been specified u/s. 274 as to whether penalty is proposed for alleged 'concealment of income' OR 'furnishing of inaccurate particulars of such income', the penalty levied is hereby obliterated. - Decided in favour of assessee.

Summary

Issues:
Penalty order under section 271(1)(c) of the Income Tax Act - Whether penalty was justified for concealment of income or furnishing inaccurate particulars of income - Compliance with notice requirements under section 274 - Applicability of Explanation 5A of Section 271(1)(c).

Analysis:

1. The appellant challenged the penalty order passed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, alleging errors both in law and on facts. The appellant contended that there was no concealment or furnishing of inaccurate particulars of income as per the provisions of section 271(1)(c).

2. The Tribunal noted that the Assessing Officer had made additions to the total income on account of agricultural income and subsequently levied a penalty under section 271(1)(c). The Tribunal observed that the Assessing Officer had mentioned the concealment of income as the reason for initiating penalty proceedings.

3. The Tribunal examined the penalty order and the notice issued under section 274 r.w.s. 271 of the Income Tax Act. It was found that the Assessing Officer had failed to specify whether the penalty was proposed for concealment of income or furnishing inaccurate particulars of income, as required by law.

4. In deciding the case, the Tribunal referred to various judicial precedents, including judgments from the Karnataka High Court, Bombay High Court, and the Delhi High Court. These judgments emphasized the importance of specifying the grounds for penalty in the notice issued under section 274, ensuring that the assessee is informed of the exact grounds for penalty imposition.

5. Based on the legal principles laid down in the aforementioned judgments, the Tribunal concluded that since the Assessing Officer had not specified the grounds for penalty under section 274, the penalty levied was unsustainable. Therefore, the Tribunal allowed the appeals of the assessee and annulled the penalty.

6. The Tribunal's decision was based on the principle that the notice under section 274 should clearly state whether the penalty is for concealment of income or furnishing inaccurate particulars of income. Failure to specify the grounds in the notice renders the penalty order invalid, as the assessee must be informed of the exact allegations to effectively contest the penalty proceedings.

7. The Tribunal's ruling highlights the significance of strict compliance with procedural requirements in penalty proceedings under the Income Tax Act, ensuring transparency and fairness in imposing penalties for non-compliance or inaccuracies in income reporting.