2018 (4) TMI 15 - AT - Income Tax

Penalty u/s 271(1)(c) - Imposing penalty for alleged concealment of income whereas the said penalty has been initiated for furnishing inaccurate particulars of income - defect in a notice u/s 274 - Held that - Concealment of income and furnishing of inaccurate particulars of income in Section 271(l)(c) of the Act, carry different meanings/connotations. Therefore, the satisfaction of the Assessing Officer with regard to only one of the two breaches mentioned under section 271(l)(c) of the Act, for initiation of penalty proceedings will not warrant/permit penalty being imposed for the other breach. This is more so, as an Assessee would respond to the ground on which the penalty has been initiated/notice issued. It must, therefore, follow that the order imposing penalty has to be made only on the ground on which the penalty proceedings has been initiated, and it cannot be on a fresh ground of which the Assessee has no notice. Therefore, the issue herein stands concluded in favour of the Respondent-Assessee by the decision of the Karnataka High Court in the case of Manjunath Cotton & Ginning Factory (2013 (7) TMI 620 - KARNATAKA HIGH COURT). - Decided against revenue

Issues Involved:
1. Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Applicability of section 292B to defective notices under section 274.
3. Disallowance of long-term capital loss and related penalties.
4. Validity of penalty notices not specifying the charge.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):
The primary issue revolves around the imposition of a penalty of ?20,00,000/- under section 271(1)(c) for alleged concealment of income, while the penalty was initiated for furnishing inaccurate particulars of income. The Tribunal referred to the case of ‘Sachin Arora vs. ITO’, where it was established that a penalty notice must clearly specify whether it is for concealment of income or for furnishing inaccurate particulars. The Tribunal emphasized that the notice issued must be specific to the charge, and any ambiguity renders the notice void ab initio.

2. Applicability of Section 292B to Defective Notices:
The Tribunal examined whether section 292B could cure defects in a notice issued under section 274, which did not specify the charge. It was determined that section 292B cannot be applied to save a notice that fails to meet the statutory requirements of section 274. The Tribunal cited multiple judgments, including the Karnataka High Court in ‘Manjunath Cotton and Ginning Factory’, which held that a penalty notice must specifically state the grounds for penalty and that a standard proforma notice without striking out irrelevant clauses indicates non-application of mind.

3. Disallowance of Long-Term Capital Loss:
The Tribunal addressed the issue of imposing a penalty on the disallowance of long-term capital loss amounting to ?59,12,322/-. It was noted that the disallowance was due to an incorrect working of the cost inflation index, which was corrected by the assessee through a revised return. The Tribunal found that no penalty should be imposed as the disallowance was barred by limitation under section 275(1)(c) of the Income Tax Act, 1961.

4. Validity of Penalty Notices Not Specifying the Charge:
The Tribunal scrutinized the validity of penalty notices that did not specifically state the charge for the imposition of penalty. It was highlighted that such notices are defective and violate the principles of natural justice. The Tribunal referred to the Bombay High Court’s decision in ‘CIT vs. Samson Perinchery’, which held that penalty proceedings initiated for one limb (furnishing inaccurate particulars) and concluded for another limb (concealment of income) are invalid. The Tribunal concluded that the penalty notices in question were not in conformity with the law and thus void ab initio.

Conclusion:
The Tribunal allowed the appeals of the assessees, stating that the penalty imposed under section 271(1)(c) was not sustainable due to the defective notices issued under section 274, which failed to specify the charge. The Tribunal reiterated the necessity for clear and specific penalty notices to uphold the principles of natural justice and statutory compliance. The stay application was dismissed as infructuous following the allowance of the appeals.

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