2019 (8) TMI 1056 - AT - Income Tax

Levy of penalty u/s 271 (1) (c) - defective notice - non specification of charge - Non-disclosure of interest income - HELD THAT - We find that no such objection was raised before the authorities below by the assessee. Hon'ble Karnataka High Court in the case of Sundaram Finance Limited Vs. ACIT 2018 (5) TMI 259 - MADRAS HIGH COURT has held that even assuming that there was defect in the notice, it had caused no prejudice to the assessee and the assessee clearly understood what was the purport and import of notice issued u/s 274 r/w section 271. In the light of the judgement of the Hon'ble Karnataka High Court (supra), the plea of the assessee regarding notice being defective cannot be entertained at this stage. As in the present case as well the Assessee did not object against the notice being defective rather it filed reply making averments on merit. The assessee ought to have objected against the notice being defective at the first instance. Non-disclosure of interest income was not deliberate rather banker of the assessee reported it belatedly. It was not the fault of the assessee. The assessee has submitted that income was duly offered in the next year even before the initiation of assessment proceedings. He relied on the judgement of Hon'ble apex court rendered in the case of Price Water Home Cooper Pvt. Ltd. Vs. CIT 2012 (9) TMI 775 - Supreme Court Looking to the peculiarity of facts of the present case and coupled with the fact that after discovering the mistake offered income for tax in the subsequent year. Under these facts, levy of penalty would not be justified. Therefore, respectfully following the judgement of Hon'ble Supreme Court in the case of Price Water Home Cooper Pvt. Ltd. Vs. CIT 2012 (9) TMI 775 - Supreme Court we hereby direct the A.O. to delete penalty. This ground of assessee s appeal is allowed.

Issues Involved:
1. Legality of penalty under Section 271(1)(c) of the Income Tax Act.
2. Validity of penalty proceedings initiation without specifying the charge.
3. Validity of show cause notice under Section 274.
4. Applicability of Supreme Court and High Court judgments.
5. Merits of the penalty imposed.
6. Quantum of penalty being arbitrary and excessive.

Issue-Wise Detailed Analysis:

1. Legality of Penalty under Section 271(1)(c) of the Income Tax Act:
The assessee contended that the levy of penalty under Section 271(1)(c) is illegal, void, and without jurisdiction. The basis for this claim was that the Assessing Officer (A.O.) did not record the requisite satisfaction as mandated by law for initiating penalty proceedings. The Tribunal noted that the penalty order was challenged both on legal grounds and on merits, and the assessee argued that the initiation of penalty proceedings was bad in law due to the defective notice which did not specify the exact charge.

2. Validity of Penalty Proceedings Initiation Without Specifying the Charge:
The assessee argued that the penalty proceedings initiated vide the assessment order dated 16/11/2015 were illegal because the specific charge (whether for "inaccurate particulars" or "concealment of income") was not specified. The Tribunal examined the notice and found that it did not disclose any specific charge, which is a requirement as per the law. However, it was noted that the assessee did not raise this objection at the initial stages before the A.O. or the Commissioner of Income Tax (Appeals) [CIT(A)].

3. Validity of Show Cause Notice under Section 274:
The show cause notice dated 16/11/2015 issued under Section 274 was argued to be illegal, void, and without jurisdiction because it did not contain any specific charges. The Tribunal referred to the judgment of the Karnataka High Court in the case of Sundaram Finance Limited vs. ACIT, which held that such objections should be raised at the earliest stage. Since the assessee did not object to the notice being defective at the initial stages, the Tribunal concluded that this plea could not be entertained at a later stage.

4. Applicability of Supreme Court and High Court Judgments:
The assessee relied heavily on the judgments of the Supreme Court in CIT vs. SSA’s Emerald Meadows and the Karnataka High Court in Commissioner of Income Tax vs. Manjunatha Cotton and Ginning Factory to argue that the penalty proceedings were not sustainable. The Tribunal acknowledged these judgments but noted that the assessee did not raise the objection regarding the defective notice at the appropriate time, as required by the precedent set in Sundaram Finance Limited vs. ACIT.

5. Merits of the Penalty Imposed:
On the merits, the assessee argued that the penalty under Section 271(1)(c) was not sustainable as the alleged interest income was already offered in the subsequent assessment year 2014-15, much before the initiation of the assessment proceedings. The difference in income arose due to delayed intimation by the bank, and there was no concealment of income or furnishing of inaccurate particulars. The Tribunal found merit in the assessee's argument, noting that the income was offered in the subsequent year and that the non-disclosure was not deliberate but due to the bank's delayed reporting.

6. Quantum of Penalty Being Arbitrary and Excessive:
The assessee also contended that the quantum of penalty at ?2,00,000/- was arbitrary, excessive, and high under the circumstances of the case. The Tribunal, after considering the facts and the precedent set by the Supreme Court in Price Waterhouse Coopers Pvt. Ltd. vs. CIT, directed the A.O. to delete the penalty, thereby allowing this ground of the assessee’s appeal.

Conclusion:
The Tribunal concluded that the penalty proceedings were not sustainable on both legal grounds and on merits. The notice issued was found to be defective, and the penalty was deemed unjustified due to the peculiar facts of the case where the income was offered in the subsequent year. Consequently, the appeal of the assessee was partly allowed, and the penalty was directed to be deleted.

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