2019 (4) TMI 1523 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - non specification of charge - defective notice - Held that - Notice issued by the Assessing Officer under Section 274 read with Section 271(l)(c) to be bad in law as it did not specify which limb of Section 271(l)(c), the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of COMMISSIONER OF INCOME TAX -VS- MANJUNATHA COTTON AND GINNING FACTORY (2013 (7) TMI 620 - KARNATAKA HIGH COURT) . Also see M/S SSA'S EMERALD MEADOWS 2016 (8) TMI 1145 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues:
1. Validity of penalty under section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2011-12.
2. Defect in notice issued under section 274 r.w.s. 271(1)(c) of the Act.
3. Whether penalty for concealment of income or furnishing inaccurate particulars of income is justified.

Issue 1: Validity of penalty under section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2011-12:

The appeal was against the order of CIT(A) upholding the levy of penalty under section 271(1)(c) of the Act. The assessee's income was determined with additions of unexplained cash credits and income from share trading. The penalty was initiated simultaneously with the assessment and was upheld by the CIT(A). The Tribunal considered the grounds raised by the assessee challenging the validity of the penalty.

Issue 2: Defect in notice issued under section 274 r.w.s. 271(1)(c) of the Act:

The assessee contended that the notice for penalty was defective as it did not specify whether it was for concealment of income or furnishing inaccurate particulars. The AO did not delete inappropriate words in the notice, making it unclear. The Tribunal referred to the decision of the Hon'ble Karnataka High Court in the case of M/s. Manjunatha Cotton & Ginning Factory, emphasizing the necessity of specifying the nature of default in the notice.

Issue 3: Whether penalty for concealment of income or furnishing inaccurate particulars of income is justified:

The Tribunal analyzed the judgment of the Hon'ble Karnataka High Court, which stated that penalty proceedings should be initiated based on specific grounds mentioned in the order. The notice must clearly indicate whether it is for concealment of income or furnishing inaccurate particulars. The Tribunal found the notice issued by the AO to be invalid due to lack of clarity on the default committed by the assessee. Citing previous judgments, the Tribunal held that the penalty proceedings were invalid and canceled the penalty levied under section 271(1)(c) for Assessment Year 2011-12.

In conclusion, the Tribunal allowed the assessee's appeal for Assessment Year 2011-12 based on the invalidity of the penalty proceedings due to defects in the notice issued under section 274 r.w.s. 271(1)(c) of the Act. The other grounds raised by the assessee were deemed academic and did not require adjudication.