2018 (8) TMI 1486 - AT - Income Tax

Penalty levied u/s. 271(1)(c) - defective notice - assessee was working as Principal of Homeo Medical College, being a Government medical officer, was getting huge income from private practice in the income tax returns filed - assessee did not file return of income for the AY 2002-03 in time but only filed it on 09/04/2003, i.e., after the date of survey - Held that - As seen from the notice issued u/s. 274 of the Act, the AO has not struck out the irrelevant portion of the notice. In other words, he has not specified whether he is levying penalty for concealment of particulars of income or furnishing of inaccurate particulars of income. As held by the Karnataka High Court in the case of CIT & Anr. vs. M/s. SSA s Emerald Meadows 2015 (11) TMI 1620 - KARNATAKA HIGH COURT that the notice issued by the Assessing Officer u/s. 274 r.w.s 271(1)(c) is to be bad in law as it did not specify which limb of section 271(1)(c), the penalty proceedings had been initiated, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. This view was confirmed by the Supreme Court in the same case, i.e., CIT & Anr. vs. M/s. SSA s Emerald Meadows reported in 2016 (8) TMI 1145 - SUPREME COURT Thus we are inclined to hold that the penalty proceedings initiated by the AO is ab initio void and allow the appeal of the assessee

Summary

Issues:
1. Sustenance of penalty under section 271(1)(c) of the Income Tax Act.

Analysis:
The case involved an appeal against the order of the CIT(A) regarding the sustenance of a penalty under section 271(1)(c) of the Income Tax Act for the assessment year 2002-03. The assessee, a Principal of a Homeo Medical College, was also engaged in private practice. A survey conducted under section 133A revealed discrepancies in the income declared by the assessee. The Assessing Officer (AO) made additions to the income, which were subsequently reduced by the CIT(A). However, the AO levied a penalty of ?2,25,877 under section 271(1)(c) for alleged concealment of income.

The CIT(A) upheld the penalty, emphasizing that as a medical professional, the assessee was required to maintain proper accounts as per section 44AA of the Act. The CIT(A) noted discrepancies in the income declared by the assessee and highlighted the need for maintaining accurate records. The CIT(A) also observed that the assessee's income from private practice was substantial, indicating a failure to comply with tax laws. The CIT(A) concluded that the penalty was justified as it was the minimum amount applicable.

In the appeal before the ITAT Cochin, the assessee raised a procedural issue regarding the validity of the penalty order. The assessee argued that the AO failed to specify the grounds for levying the penalty under section 271(1)(c) in the notice issued, as required by section 274 of the Act. Citing relevant case law, the assessee contended that the penalty proceedings were invalid due to this procedural lapse.

After considering the submissions and examining the notice issued by the AO, the ITAT Cochin agreed with the assessee's argument. The ITAT Cochin noted that the notice did not specify whether the penalty was imposed for concealment of income or furnishing inaccurate particulars. Relying on precedents, including judgments from the Karnataka High Court and the Supreme Court, the ITAT Cochin held that the penalty proceedings were flawed from the beginning due to the lack of clarity in the notice. Consequently, the ITAT Cochin allowed the appeal, quashing the penalty proceedings and refraining from addressing other grounds raised by the assessee.

In conclusion, the ITAT Cochin allowed the appeal filed by the assessee, emphasizing the importance of adherence to procedural requirements in penalty proceedings under the Income Tax Act. The judgment highlighted the significance of clearly specifying the grounds for imposing penalties to ensure procedural fairness and compliance with legal provisions.