2019 (4) TMI 1660 - AT - Income Tax

Penalty u/s.271(1)(c) - non specification of charge - disallowance of excise duty paid and disallowance out of technical fees paid - HELD THAT - From the perusal of the assessment order, it is seen that AO has though specified the charge that he is initiating the penalty proceedings u/s. 271(1)(c) on account of furnishing of inaccurate particulars of income, however, at the time of issuance of show cause notice u/s.274, no such charge has been specified. The notices have been sent on a printed format wherein he has not strike down or mentioned as to under which limb he is proposing to levy the penalty. Section 271(1)(c) stipulates two limbs of charges in which penalty can be levied, one, where any person has concealed the particulars of his income; or second, he has furnished inaccurate particulars of such income. As in the case of CIT vs. Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT has held that a person who is accused of conditions mentioned in Section 271 should be made known about the grounds on which the Department is imposing penalty, as Section 274 makes it clear that the assessee has right to contest such proceedings and should have full opportunity to meet the case of the Department and show that conditions stipulates in Section 271(1)(c) did not exist and is not liable to pay the penalty. Mere sending of printed form with all the grounds mentioned is not sufficient compliance of law. The aforesaid principle and ratio laid down by the Hon'ble Karnataka High Court would also apply in the present case, because here in this case the AO while issuing a show cause notice u/s.274 r.w.s. 271 in printed format has not specified the grounds as to under which limb he is proposing to initiate and levy a penalty u/s. 271(1)(c). Thus, we hold that impugned penalty levied by the Assessing Officer is not valid and same is not sustainable. On this ground the entire penalty is deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of penalty on account of addition made under the head 'technical advisory fees'.
2. Disallowance of expenditure.
3. Confirmation of penalty on account of disallowance of excise duty paid.
4. Validity of penalty proceedings under Section 271(1)(c) due to unspecified nature of default in the show-cause notice.

Detailed Analysis:

Issue 1: Deletion of Penalty on Account of Addition Made Under the Head 'Technical Advisory Fees'
The Revenue was aggrieved by the deletion of penalty concerning the addition made under the head 'technical advisory fees' amounting to ?6,57,45,000/-. The Assessing Officer (AO) had disallowed the 'technical advisory services' payment of ?13,57,45,000/- to M/s. Shervani Industrial Syndicate, noting that no such fee was paid in the previous year. The assessee claimed that the payment was for technical support in battery manufacturing, supported by an agreement. However, the AO found no evidence of services rendered, such as travel, advice, evaluation, or technology provided, leading to the disallowance.

Issue 2: Disallowance of Expenditure
The AO also disallowed the expenditure of ?6,57,95,000/-. The Tribunal, in quantum proceedings, provided partial relief by confirming the disallowance of ?7 crore as done by the CIT(A), treating ?5.65 crore as capital expenditure but allowing depreciation. The penalty was levied on the quantum of disallowance upheld by the first appellate authority.

Issue 3: Confirmation of Penalty on Account of Disallowance of Excise Duty Paid
The assessee claimed a deduction of ?70,00,000/- u/s.43B for excise duty paid under protest. The AO disallowed this, stating that the liability was of M/s. Rialto Enterprises Pvt. Ltd., not the assessee. The CIT(A) confirmed the penalty on the disallowance u/s.43B of ?70 lacs.

Issue 4: Validity of Penalty Proceedings Under Section 271(1)(c)
The assessee's counsel argued that the show-cause notice issued u/s.274 r.w.s. 271 did not specify the exact nature of the default, whether it was for concealment of income or furnishing inaccurate particulars. The Karnataka High Court in CIT vs. Manjunatha Cotton & Ginning Factory held that the grounds for penalty must be clear, and a vague notice violates the principles of natural justice. The Tribunal found that the AO did not specify the charge in the printed format notice, making the penalty proceedings invalid. The Hon'ble Supreme Court and various High Courts have upheld that the notice must clearly state the grounds for penalty.

Conclusion:
The Tribunal concluded that the penalty proceedings were invalid due to the unspecified nature of the default in the show-cause notice. Consequently, the entire penalty was deleted. The Revenue’s appeal was dismissed, and the assessee’s appeal was allowed.

Order Pronounced:
The order was pronounced in the open Court on 25th April, 2019.