2018 (4) TMI 1351 - AT - Income Tax

Validity of initiation of proceedings u/s 271(1)(c) - non specification of charge - Held that - When the AO has not specifically indicated the grounds for initiation of proceedings for levy of penalty whether it is for concealment of particulars of income or for furnishing inaccurate particulars of income, then the said show cause notice suffers from illegality and consequential order passed by the AO u/s 271(1)(c) is not sustainable and liable to be quashed. Accordingly, we set aside the impugned order passed u/s 271(1)(c) and delete the penalty of levied by the AO u/s 271(1)(c) of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of initiation and imposition of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.
2. Confirmation of penalty on additional income declared by the assessee in returns filed under Section 153A.

Detailed Analysis:

1. Validity of Initiation and Imposition of Penalty Proceedings:
The primary issue in this case revolves around the validity of the initiation and imposition of penalty proceedings under Section 271(1)(c) of the Income Tax Act. The assessee argued that the penalty notice issued by the Assessing Officer (AO) did not specify whether the penalty was for "concealment of particulars of income" or for "furnishing inaccurate particulars of income," thus making the initiation of penalty proceedings invalid and void-ab-initio. The assessee relied on several judicial precedents, including the decisions of the Hon'ble Karnataka High Court in CIT vs. Manjunatha Cotton and Ginning Factory and the Hon'ble Supreme Court in CIT vs. SSA’s Emerald Meadows, which emphasized the necessity for the AO to clearly specify the grounds for penalty in the show-cause notice.

The Tribunal noted that the AO had issued a generic penalty notice without specifying the exact charge against the assessee. This non-specificity in the notice was deemed to be a significant procedural lapse, as it deprived the assessee of the opportunity to adequately defend against the penalty proceedings. The Tribunal cited the decision of the Karnataka High Court in Manjunatha Cotton and Ginning Factory, which held that a vague notice offends the principles of natural justice and cannot form the basis for imposing a penalty. The Tribunal also referenced the jurisdictional High Court's decision in Sheveta Construction Company Pvt. Ltd vs. ITO, which reinforced the requirement for clarity in penalty notices.

Given these precedents, the Tribunal concluded that the penalty notice issued by the AO was invalid due to its failure to specify the grounds for penalty. Consequently, the penalty order passed under Section 271(1)(c) was quashed.

2. Confirmation of Penalty on Additional Income Declared:
The second issue pertained to the confirmation of penalty on the additional income declared by the assessee in the returns filed under Section 153A for the assessment years 2009-10 and 2010-11. The assessee had declared additional income of ?29,01,920 for the assessment year 2009-10 and ?16,51,000 for the assessment year 2010-11, which was surrendered during the search proceedings.

Since the Tribunal had already quashed the penalty orders on the grounds of invalid initiation of penalty proceedings, the issue of confirming the penalty on the additional income became infructuous. The Tribunal did not delve into the merits of this issue, as the primary ground for quashing the penalty had already been established.

Conclusion:
In conclusion, the Tribunal allowed the appeals filed by the assessee, quashing the penalty orders passed under Section 271(1)(c) of the Income Tax Act. The Tribunal emphasized the necessity for AOs to clearly specify the grounds for penalty in the show-cause notices to uphold the principles of natural justice. The decision serves as a reminder of the importance of procedural accuracy in penalty proceedings under the Income Tax Act.