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2019 (9) TMI 663 - AT - Income TaxPenalty u/s 271(1)(c) - defective notice - Disallowance on account of claiming excessive bad debts written off - whether the assessee has concealed particulars of income or has furnished inaccurate particulars of income during assessment proceedings? - HELD THAT - Hon ble High Court of Karnataka in case of CIT vs. Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT while deciding the identical issue held that when the AO has failed to issue a specific show-cause notice to the assessee as required u/s 274 read with section 271(l)(c) penalty levied is not sustainable. When the notice issued by the AO is bad in law being vague and ambiguous having not specified under which limb of section 271(1)(c) of the Act the penalty proceedings initiated u/s 271(1)(c) are not sustainable. See M/S SSA S EMERALD MEADOWS 2016 (8) TMI 1145 - SC ORDER Even the AO has failed to apply his mind at the time of recording satisfaction at the time of framing assessment to initiate the penalty proceedings u/s 271(1)(c) of the Act as to under which limb of section 271(1)(c) i.e. for concealing particulars of income or furnishing inaccurate particulars of such income penalty proceedings have been initiated rather written vague and ambiguous satisfaction recorded that penalty proceedings u/s 271(1)(c) are initiated - Decided in favour of assessee.
Issues Involved:
1. Confirmation of penalty imposed under section 271(1)(c) of the Income-tax Act, 1961. 2. Validity of the notice issued under section 274 for initiating penalty proceedings. 3. Recording of proper satisfaction for initiating penalty proceedings. 4. Adequacy of opportunity granted to the assessee. 5. Allegation of deliberate claim of excessive bad debts and furnishing of inaccurate particulars. Detailed Analysis: 1. Confirmation of Penalty under Section 271(1)(c): The primary issue was whether the penalty of ?7,36,512/- imposed by the Assessing Officer (AO) under section 271(1)(c) for the assessment year 2011-12 was justified. The AO initiated the penalty proceedings based on an assessment order that disallowed ?19,70,000/- of bad debts claimed by the assessee, concluding that the assessee willfully claimed excessive bad debts to reduce tax liability. The Commissioner of Income-tax (Appeals) [CIT(A)] confirmed this penalty, leading the assessee to appeal to the Tribunal. 2. Validity of Notice under Section 274: The Tribunal examined the notice issued by the AO under section 274 read with section 271(1)(c) and found it to be vague and ambiguous. The notice did not specify whether the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." Citing precedents from the Karnataka High Court in CIT vs. Manjunatha Cotton and Ginning Factory and the Supreme Court in CIT vs. SSA’s Emerala Meadows, the Tribunal held that such ambiguity rendered the notice invalid, as it failed to inform the assessee of the specific charge against them, thus violating principles of natural justice. 3. Recording of Proper Satisfaction: The Tribunal noted that the AO did not record a clear satisfaction regarding the specific limb of section 271(1)(c) under which the penalty was being initiated. The satisfaction recorded was vague, merely stating that "penalty proceedings u/s 271(1)(c) are initiated," without specifying whether it was for concealment or furnishing inaccurate particulars. This lack of clarity and specific satisfaction was deemed insufficient to sustain the penalty proceedings. 4. Adequacy of Opportunity Granted: The assessee argued that proper opportunity was not granted by the AO, which the CIT(A) dismissed. However, the Tribunal found that the vague notice and lack of specific satisfaction inherently denied the assessee a fair opportunity to contest the penalty proceedings effectively. 5. Allegation of Deliberate Claim of Excessive Bad Debts: The AO alleged that the assessee deliberately claimed excessive bad debts and furnished inaccurate particulars. However, the Tribunal observed that no actual addition was made in the assessment order. The penalty was levied based on an assumed addition, which was not sustainable. The Tribunal emphasized that penalty proceedings must be based on clear and specific findings of concealment or inaccurate particulars, which were absent in this case. Conclusion: The Tribunal concluded that the penalty proceedings initiated under section 271(1)(c) were not sustainable due to the invalid notice, lack of specific satisfaction, and absence of a clear basis for the penalty. Consequently, the penalty imposed by the AO and confirmed by the CIT(A) was deleted, and the appeal filed by the assessee was allowed. The order was pronounced in open court on September 13, 2019.
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