2019 (5) TMI 182 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - defective notice - non specification of charge - 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) of the Act, 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) and M/S SSA'S EMERALD MEADOWS 2016 (8) TMI 1145 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2006-07.

Detailed Analysis:

Issue 1: Grounds 3 and 4 - Validity of Penalty Notice
The appeal challenged the penalty under section 271(1)(c) of the Act for Assessment Year 2006-07, citing a defective notice issued by the Assessing Officer (AO) without specifying the nature of default. The appellant relied on the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Kar) to argue that such a notice is invalid and renders the penalty proceedings invalid as well. The AO's notice did not clearly indicate whether the penalty was for concealment of income or furnishing inaccurate particulars of income. The Tribunal, after careful consideration, agreed with the appellant and referenced the High Court's judgment, emphasizing that penalty proceedings must be initiated based on specific grounds and the notice should clearly state the nature of the default. As the notice was defective, the Tribunal canceled the penalty levied under section 271(1)(c) for Assessment Year 2006-07.

Issue 2: Other Grounds of Appeal
Due to the finding regarding the validity of the penalty notice, the Tribunal deemed the other grounds of appeal raised by the assessee on the merits of the penalty levy as academic and unnecessary for adjudication. The decision on the validity of the penalty notice rendered the other grounds irrelevant, and therefore, the Tribunal did not delve into those aspects.

Conclusion
The Tribunal allowed the assessee's appeal for Assessment Year 2006-07 based on the invalidity of the penalty notice issued by the AO, leading to the cancellation of the penalty under section 271(1)(c) of the Income Tax Act, 1961. The judgment highlighted the importance of a clear and specific notice when initiating penalty proceedings, in line with the legal principles outlined by the Hon'ble Karnataka High Court. The decision was pronounced on April 30, 2019, in favor of the assessee.