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2020 (12) TMI 445 - AT - Income TaxPenalty u/s 271(1)(c) - Defective notice - absence of any specific charge levelled in the said notice - HELD THAT - Initiation of the penalty proceedings by the authorities below under section 271(1)(c) on the ground that in the absence of any specific mention in the show-cause notice issued under section 274 for the year under consideration by the authorities below as to whether the assessee is guilty of having furnished inaccurate particulars of income or of having concealed particulars of such income , the initiation of penalty proceedings itself was bad in law and the penalty order passed in pursuance thereof is liable to be quashed being invalid. Relevant penalty notice to point out that the irrelevant portion, viz. furnished inaccurate particulars of income or concealed particulars of such income was not struck off by the Assessing Officer. - Decided in favour of assessee.
Issues Involved:
1. Validity of the penalty notice issued under section 271(1)(c) of the Income Tax Act, 1961. 2. Whether the penalty imposed under section 271(1)(c) was justified. Issue-wise Detailed Analysis: 1. Validity of the Penalty Notice Issued under Section 271(1)(c) of the Income Tax Act, 1961: The primary contention raised by the assessee was that the penalty notice issued under section 271(1)(c) was defective due to the absence of a specific charge. The notice did not clearly state whether the penalty was being imposed for "furnishing inaccurate particulars of income" or "concealing particulars of such income." The Tribunal observed that this issue had been addressed in previous cases, including the decision of the Hon'ble Karnataka High Court in CIT & Another vs. Manjunatha Cotton & Ginning Factory (359 ITR 565), which held that the notice under section 274 should specifically state the grounds for the penalty. The Tribunal noted that the show-cause notice in the present case did not strike out the irrelevant portion, making it unclear whether the penalty was for furnishing inaccurate particulars or for concealment. The Tribunal cited the decision in Suvaprasanna Bhattacharya vs. ACIT (ITA No. 1303/KOL/2010), where a similar issue was considered, and the penalty order was held invalid due to the defective notice. The principles laid down in the Manjunatha Cotton case were reiterated, emphasizing that the notice should clearly state the grounds for the penalty to satisfy the requirements of natural justice. The Tribunal also referred to the decision of the Hon'ble Calcutta High Court in Principal CIT vs. Bijoy Kr. Agarwal (ITAT No. 272 of 2017), which upheld the Tribunal's decision to cancel the penalty imposed under section 271(1)(c) due to a defective notice. 2. Whether the Penalty Imposed under Section 271(1)(c) was Justified: The Tribunal examined whether the penalty imposed by the Assessing Officer (AO) under section 271(1)(c) was justified. The AO had imposed a penalty of ?2,32,318/- on the assessee for an addition of ?7,16,043/- made to the total income on account of interest received on income tax refunds under section 244A. The assessee argued that the penalty proceedings were initiated without specifying the exact charge, making the penalty order invalid. The Tribunal noted that the Ld. CIT(A) had upheld the penalty, stating that even if there was a defect in the notice, it did not cause prejudice to the assessee, who clearly understood the notice's purpose. However, the Tribunal disagreed with this view, emphasizing that the principles of natural justice require the notice to be clear and specific about the grounds for the penalty. The Tribunal concluded that the defective notice rendered the penalty proceedings invalid, and the penalty imposed could not be sustained. Conclusion: The Tribunal allowed the appeal of the assessee, canceling the penalty imposed under section 271(1)(c) due to the defective notice that failed to specify the grounds for the penalty. The decision was based on the principles laid down in previous judicial pronouncements, including the decisions of the Hon'ble Karnataka High Court and the Hon'ble Calcutta High Court, which emphasized the need for clarity and specificity in penalty notices to uphold the principles of natural justice. Order: The appeal of the assessee is allowed, and the penalty imposed under section 271(1)(c) is canceled. The order was pronounced in the open court on 9th December 2020.
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