2017 (3) TMI 677 - AT - Income Tax

Penalty under section 271(1)(c) - faulty notice - Held that - The show-cause notice issued by the Assessing Officer under section 274 for the year under consideration not being in accordance with law, the penalty order passed by the Assessing Officer in pursuance thereof is liable to be cancel led being invalid. We cancel the order passed by the Assessing Officer imposing penalty under section 271(1)(c) . See CIT & Another vs. - Manjunatha Cotton & Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT - Decided in favour of assessee

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Validity of the penalty order under section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

1. Delay in Filing the Appeal:
At the outset, the appeal filed by the assessee had a delay of 14 days. The assessee submitted an application for condonation of this delay. The Tribunal, considering the reasons provided, found sufficient cause for the delay and condoned it. The Department's representative did not raise any substantial argument against this condonation. Consequently, the Tribunal decided to proceed with the appeal on its merits.

2. Validity of the Penalty Order:
The primary issue raised by the assessee was the validity of the penalty order passed by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act, 1961. The assessee contended that the show-cause notice issued under section 274 was defective. Specifically, the notice did not clearly indicate whether the penalty was for "furnishing inaccurate particulars of income" or "concealing particulars of such income," as the irrelevant portion was not struck off.

The Tribunal examined the show-cause notice and noted that the AO had not struck off the irrelevant part, making it unclear whether the penalty was for furnishing inaccurate particulars or concealing income. The Tribunal referred to the decision of the Hon’ble Karnataka High Court in the case of CIT & Another vs. Manjunatha Cotton & Ginning Factory (359 ITR 565), which laid down that a notice under section 274 must specifically state the grounds for imposing the penalty. The High Court had emphasized that a vague notice would offend principles of natural justice and would render the penalty proceedings invalid.

The Tribunal also referenced its own previous decision in the case of Suvaprasanna Bhattacharya vs. ACIT (ITA No. 1303/KOL/2010), where it was held that a similar defective notice rendered the penalty order invalid. The principles established in the Manjunatha Cotton case were reiterated, emphasizing that the assessee must be made aware of the specific grounds for the penalty to contest it effectively.

The Tribunal concluded that the show-cause notice issued to the assessee was defective as it did not clearly specify the grounds for the penalty. Consequently, the penalty order passed by the AO was deemed invalid. The Tribunal canceled the penalty order and allowed the appeal filed by the assessee.

Conclusion:
The Tribunal allowed the appeal of the assessee, canceling the penalty order under section 271(1)(c) due to the defective show-cause notice issued under section 274. The decision was pronounced in the open Court on March 10, 2017.