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2016 (10) TMI 599 - HC - Income TaxLevy of Penalty u/s 271 (1)(c) - defective notice - Held that - Had it been a case where the notice for penalty was not on record in the proceedings of assessment, the matter might stand on a different footing. In any case, where notice for imposition of penalty under Section 271(1)(c) of the Act was already there on record and when the Tribunal was to examine the applicability of this Court decision in the case of M/s.Manjunatha Cotton and Ginning Factory (2013 (7) TMI 620 - KARNATAKA HIGH COURT ) and the law laid down, it was a case where the contention ought to have been considered and examined. As observed by us herein above, the decision in the case of M/s.Manjunatha Cotton and Ginning Factory (supra), would apply and if the notice is found to be illegal and is found to be unsustainable in law and the consequences would be that there is breach of natural justice. Hence, the ultimate order for imposition of penalty cannot be sustained. - Decided in favour of assessee
Issues Involved:
1. Legality of the penalty imposed under Section 271(1)(c) of the Income Tax Act. 2. Applicability of the decision in CIT vs. Manjunatha Cotton and Ginning Factory to the present case. 3. Validity of the notice issued under Section 271(1)(c) of the Act. Detailed Analysis: 1. Legality of the Penalty Imposed Under Section 271(1)(c) of the Income Tax Act: The primary issue in this appeal is whether the penalty imposed under Section 271(1)(c) of the Income Tax Act is justified. The Tribunal upheld the penalty, stating that the assessee failed to provide evidence to support the claimed expenditure, thus failing to discharge the onus of proof. The Tribunal noted that the presumption of concealment of income was not rebutted by the assessee, as required under Explanation 1 to Section 271(1)(c). The Tribunal's decision was based on the assessee's inability to furnish any details or evidence to substantiate the claim of expenditure incurred on the cost of improvement. 2. Applicability of the Decision in CIT vs. Manjunatha Cotton and Ginning Factory: The appellant contended that the penalty notice was contrary to the decision in CIT vs. Manjunatha Cotton and Ginning Factory. The Tribunal, however, did not find this decision applicable, reasoning that the penalty was not due to an agreed addition but due to the assessee's failure to substantiate the expenditure claim. The Tribunal emphasized that the facts of the present case differed from those in Manjunatha Cotton and Ginning Factory, where the penalty was not upheld due to the absence of material evidence indicating concealment of income. 3. Validity of the Notice Issued Under Section 271(1)(c) of the Act: The High Court scrutinized the notice issued under Section 271(1)(c) and found it to be a printed form without specifying the grounds for penalty, thus violating the principles of natural justice. The Court referred to the decision in Manjunatha Cotton and Ginning Factory, which mandates that the notice must clearly state whether the penalty is for concealment of income or furnishing incorrect particulars. The Court observed that the lack of specificity in the notice resulted in a breach of natural justice, rendering the penalty proceedings unsustainable. Conclusion: The High Court concluded that the Tribunal erred in not applying the decision in Manjunatha Cotton and Ginning Factory to the present case. The Court held that the notice issued under Section 271(1)(c) was invalid due to its failure to specify the grounds for penalty, violating the principles of natural justice. Consequently, the penalty imposed was deemed unsustainable in law. The Court allowed the appeal, setting aside the Tribunal's order and the penalty imposed, and declared that the penalty proceedings were invalid due to the defective notice. Final Order: The appeal was allowed, and the order imposing the penalty was set aside. The Court emphasized that the principles of natural justice were violated due to the non-specific nature of the penalty notice, in line with the precedent set in Manjunatha Cotton and Ginning Factory. The Court also disposed of the stay application as it became redundant following the disposal of the main appeal.
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