2017 (10) TMI 1156 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - defective notice - Held that - Assessing Officer has not specified whether the notice was issued for concealment of particulars of income or for furnishing of inaccurate particulars of income Drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law and the notice issued u/s 274 r.w.s. 271(1)(c) of the Act shall specify under which limb of Sec. 271(1)(c) of the Act the penalty proceedings were initiated, and in the absence of such clarity, the proceedings are bad in law. We, therefore, hold that the impugned penalty proceedings are bad in law and cannot be sustained. - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act, 1961 - Concealment of income or furnishing inaccurate particulars of income.

Detailed Analysis:

Issue 1: Penalty under section 271(1)(c) - Concealment of income or furnishing inaccurate particulars of income

The appellant challenged the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961, claiming that the order was against the law and facts on the file. The dispute arose from the addition of unsecured loans to the tune of ?2.4 crores, where the Assessing Officer (AO) found discrepancies in proving the identity, creditworthiness, and genuineness of transactions of certain creditors. The AO invoked section 68 of the Act, resulting in the addition. Despite the appellant's efforts to establish the creditworthiness of the creditors, the AO, CIT(A), ITAT, and High Court upheld the addition, leading to the penalty proceedings.

The appellant argued that the penalty proceedings were flawed as there was no clear specification in the penalty notice whether it was for concealment of income or furnishing inaccurate particulars of income. Citing the decision in CIT vs Manjunatha Cotton & Ginning Factory, the appellant contended that penalty proceedings for one offense cannot be sustained if the penalty was imposed for another offense. The appellant emphasized the importance of specifying the grounds for penalty proceedings to ensure natural justice.

The Department, on the other hand, defended the penalty, asserting that the loans were structured to route the appellant's own funds through creditors, justifying the penalty under section 271(1)(c) based on various legal precedents. However, the Tribunal found that the penalty proceedings lacked clarity on the specific grounds, rendering them unsustainable in law. Referring to judgments by the Karnataka High Court and the Supreme Court, the Tribunal held that penalty proceedings must align with the grounds specified in the notice, and in the absence of such clarity, the proceedings are invalid.

The Tribunal, following the legal principles established in the cited cases, concluded that the penalty proceedings were defective due to the lack of specificity in the notice regarding the grounds for penalty. Consequently, the Tribunal quashed the penalty proceedings, ruling in favor of the appellant. The decision highlighted the necessity of clearly defining the grounds for penalty in the notice to uphold the principles of natural justice.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the importance of adherence to legal requirements in penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961.