2024 (11) TMI 766 - AT - Income Tax

Penalty u/s 271(1)(c) - allegation of defective notice - non specification of clear charge - assessee has held that assessee concealed particulars of income of deposited cash in the bank account without satisfactory explanation - HELD THAT - As decided in Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind. It is important to mention here that decision of the Hon'ble Karnataka High Court has been upheld in the case of CIT vs. SSA'S Emerald Meadows 2016 (8) TMI 1145 - SC ORDER wherein the Hon'ble Apex Court has held no penalty can be levied without specifying which limb of Section 271(1)(c) of the Act would be applicable in case of the assessee. Thus, as AO has passed an order u/s 271(1)(c) of the Act on two limbs; (i) concealed particulars of income and (ii) furnishing inaccurate particulars of income. Accordingly, we are in this opinion that penalty notice issued in this case suffers from infirmity that lack of satisfaction and lack of notice being issued in making the assessee aware regarding exact charge against him and hence, the same is liable to be quashed. Decided in favour of assessee.

Summary

Issues Involved:

1. Validity of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.
2. Requirement of specific satisfaction and notice for penalty under Section 271(1)(c).

Detailed Analysis:

1. Validity of Penalty Proceedings under Section 271(1)(c):

The primary issue in this case revolves around the validity of the penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act, 1961. The assessee challenged the penalty imposed by the Assessing Officer (AO) on the grounds that the penalty notice did not specify the exact charge against the assessee, i.e., whether it was for "concealment of income" or "furnishing inaccurate particulars of income." The AO had initiated penalty proceedings based on the assessee's failure to satisfactorily explain the source of cash deposits, non-disclosure of interest income, and discrepancies in rental income. However, the penalty notice was vague, as it mentioned both limbs of Section 271(1)(c) without specifying which one was applicable. The assessee argued that such a notice is invalid and void, citing several judicial precedents to support this contention.

2. Requirement of Specific Satisfaction and Notice:

The judgment extensively discusses the legal requirement for specific satisfaction and notice in penalty proceedings under Section 271(1)(c). It emphasizes that the penalty provision is penal in nature and must be strictly construed. The AO must record satisfaction during the assessment proceedings as to whether the assessee has concealed income or furnished inaccurate particulars. The section requires the AO to clearly specify the limb under which the penalty is being initiated to allow the assessee to adequately respond. The Karnataka High Court, in the case of CIT & Anr. Vs. Manjunatha Cotton and Ginning Factory, highlighted that a vague notice violates the principles of natural justice, as the assessee is not informed of the specific charge. This position was upheld by the Supreme Court in CIT vs. SSA's Emerald Meadows, which ruled that no penalty can be levied without specifying the applicable limb of Section 271(1)(c).

The Tribunal, referencing these judgments, concluded that the penalty notice issued to the assessee was defective due to the lack of specific satisfaction and clear notice of the charge. Consequently, the penalty order was quashed. The Tribunal also referenced the recent ITAT Kolkata decision in B.P. Poddar Foundation for Education, which reiterated that the AO must specify the correct limb of penalty in the notice to uphold the principles of natural justice.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, setting aside the penalty order due to the defective notice and lack of specific satisfaction as required under Section 271(1)(c). The judgment underscores the necessity for precise and clear communication by the tax authorities when imposing penalties, ensuring that the assessee is fully aware of the charges to effectively defend against them.