2020 (1) TMI 449 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - disallowance of the claim of exemption u/s 10B - HELD THAT - Order passed in section 143(3) of the Act does not specify whether the proceedings were to be initiated for either concealment of income or for furnishing inaccurate particulars or both. It reads that inaccurate particulars of income were furnished thereby concealing an income on account of wrong claim. Notice under section 274 read with section 271(1)( c ) of the Act, however, reads that the assessee had to defend itself for concealment of particulars of income or furnishing of inaccurate particulars thereof. It does not specify whether it was concealment of income or furnishing of inaccurate particulars thereof. Impugned penalty order, however, reads that penalty was levied for submitting inaccurate particulars of income. These facts indicate that there is discrepancy as to in respect of which charge the assessee was called upon to defend itself. For the AO to assume jurisdiction u/s 271(1)(c), proper notice is necessary and the defect in notice u/s 274 of the Act vitiates the assumption of jurisdiction by the learned Assessing Officer to levy any penalty. In this case, facts stated supra, clearly establish that the notice issued under section 274 read with 271 of the Act is defective and, therefore, we find it difficult to hold that the learned AO rightly assumed jurisdiction to pass the order levying the penalty. As a consequence of our findings above, we direct the Assessing Officer to delete the penalty in question. - Decided in favour of assessee.

Summary

Issues:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Proper specification of charge under which penalty proceedings were initiated.
3. Compliance with natural justice principles in penalty proceedings.

Issue 1: Levy of Penalty under Section 271(1)(c)
The case involved an appeal against the penalty of ?22,54,550 imposed on the assessee, an IT services company, for claiming an exemption under section 10B of the Income Tax Act, 1961. The penalty was initiated by the Assessing Officer based on the conclusion that inaccurate particulars of income were furnished, leading to the concealment of income. The Commissioner of Income Tax (Appeals) upheld the penalty, prompting the assessee to challenge it before the Appellate Tribunal.

Issue 2: Proper Specification of Charge in Penalty Proceedings
One of the key contentions raised by the assessee was the lack of specific charge or limb of section 271(1)(c) mentioned in the assessment order or penalty notice. The discrepancy between the charge of concealment of income or furnishing inaccurate particulars thereof was highlighted. The Tribunal noted that the notice did not clearly specify the grounds for penalty initiation, aligning with legal precedents emphasizing the importance of explicitly stating the grounds to afford the assessee an opportunity to defend against the charges.

Issue 3: Compliance with Natural Justice Principles
The Tribunal referred to legal precedents, including judgments by the Karnataka High Court and the Delhi High Court, which emphasized the necessity of a proper notice specifying the grounds for penalty proceedings. The judgments highlighted that failure to specify the limb of section 271(1)(c) under which the penalty was initiated renders the notice defective, vitiating the jurisdiction of the Assessing Officer to levy the penalty. Consequently, the Tribunal directed the Assessing Officer to delete the penalty, citing the defective notice as a basis for the decision.

This comprehensive analysis of the judgment showcases the intricacies of the legal proceedings, focusing on the proper specification of charges in penalty proceedings and the adherence to natural justice principles in tax matters.