2019 (4) TMI 829 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - defective notice - non specification of charge - non application of mind by AO - Disallowance of claim of depreciation on building as against returned income of the assessee at Nil - HELD THAT - Bare perusal of the notice issued u/s 27I(1)(c) apparently goes to prove that the Assessing Officer initiated the penalty proceedings by issuing the notice u/s 274/271(1)(c) of the Act without specifying whether the assessee has concealed particulars of income or assessee has furnished inaccurate particulars of income , so as to provide adequate opportunity to the assessee to explain the show cause notice. Rather notice in this case has been issued in a stereotyped manner without applying any mind which is bad in law, hence is not a valid notice sufficient to impose penalty u/s 271(1)(c) of the Act. Also as imperative for the Assessing Officer to strike- off the irrelevant limb so as to make the assessee aware as to what is the charge made against him so that he can respond accordingly. The Hon ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT observed that the levy of penalty has to be clear as to the limb under which it is being levied - where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. Where the Assessing Officer issues notice under section 274 of the Act in the standard proforma and the inappropriate words are not deleted, the same would postulate that the Assessing Officer was not sure as to whether he was to proceed on the basis that the assessee had concealed the particulars of his income or furnished inaccurate particulars of income. According to the Hon ble Supreme Court, in such a situation, levy of penalty suffers from non- application of mind. See DILIP N. SHROFF VERSUS JOINT COMMISSIONER OF INCOME-TAX AND ANOTHER 2007 (5) TMI 198 - SUPREME COURT - Decided in favour of assessee

Summary

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

Analysis:
The appeal was filed against the order confirming the penalty imposed by the Assessing Officer under section 271(1)(c) of the Act. The Assessing Officer disallowed the claim of depreciation on building, resulting in the imposition of a penalty of ?5,32,511. The issue revolved around whether the penalty notice specified if it was for concealment of income or furnishing inaccurate particulars. The assessee argued that the penalty should be cancelled based on a Supreme Court ruling. The Departmental Representative cited various cases to support the penalty proceedings. The Tribunal found that the penalty notice did not explicitly mention the reason for initiating penalty proceedings, rendering it unsustainable. The Tribunal referred to a Karnataka High Court judgment emphasizing the importance of specifying the limb under which the penalty is imposed. The Tribunal relied on a Supreme Court decision to cancel the penalty, as the notice lacked clarity on the reason for penalty imposition.

The Tribunal dismissed the appeal, citing the Karnataka High Court's decision that the notice was insufficient as it did not specify the grounds for penalty imposition. The Tribunal emphasized the necessity of clarity in penalty notices under section 271(1)(c) of the Act. The Tribunal referred to a Supreme Court case highlighting the importance of specifying the reason for penalty imposition. As the penalty notice in this case did not clarify the grounds, the Tribunal cancelled the penalty of ?5,32,511. The decision was based on the legal requirement for clear and specific penalty notices to enable the assessee to respond adequately. The Tribunal's ruling aligned with previous judicial interpretations emphasizing the need for precision in penalty proceedings under the Income Tax Act.

Therefore, the Tribunal allowed the appeal, cancelling the penalty imposed by the Assessing Officer. The decision was based on the inadequacy of the penalty notice in specifying the grounds for penalty imposition. The Tribunal's ruling was consistent with legal principles requiring clarity and specificity in penalty notices under section 271(1)(c) of the Income Tax Act.