2021 (3) TMI 99 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice - Non specification of charge - disallowance on account of non compete fee, expenditure incurred for increase in authorized capital and wrong deduction claimed u/s 80HHC on account of interest earned - HELD THAT - Penalty notice does not specify whether the penalty was proposed for concealment of particulars of income or for furnishing inaccurate particulars of such income in terms of provisions of Section 271(1)(c). The Karnataka High Court in the case of CIT vs. Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT held that notice under section 274 should specifically state the grounds mentioned in section 271(1)(c) of the Act, i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income. Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy requirement of law. In notice dated 29.12.2006 and on 23.12.2011 issued under section 274 read with section 271 of the Act, initiated penalty against the appellant for alleged concealment of income or furnishing of inaccurate particulars of such income , that is to say, the specific default was not specified by the assessing officer in the notice issued. Hence since the notice u/s 274 has not been specified as to whether penalty is proposed for alleged concealment of income OR furnishing of inaccurate particulars of such income , the penalty levied is hereby obliterated. - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) for various additions.

Analysis:
The appeal was filed against the order of the ld. CIT(A)-LTU, New Delhi. The grounds raised by the assessee included challenges to the penalty levied under section 271(1)(c) for different additions. The penalty was imposed for disallowance on account of non-compete fee, expenditure for increased authorized capital, and incorrect deduction claimed under section 80HHC for interest earned.

The Ld. AR argued that the notice issued for the penalty was invalid as it did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars of income, as required by section 271(1)(c). It was emphasized that the assessing officer must be satisfied prima facie that the assessee has either concealed income or furnished inaccurate particulars before issuing a valid penalty notice under section 274.

On the other hand, the Ld. DR contended that the assessee was aware of the reasons for the penalty and had responded to the show cause notice. However, upon review, it was found that the penalty notice did not clearly specify the grounds for the penalty as required by law.

Citing precedents, it was highlighted that the notice under section 274 should expressly state whether the penalty is for concealment of income or furnishing incorrect particulars. The failure to specify the precise charge in the penalty notice was deemed fatal to the imposition of the penalty. The Tribunal, in line with the decisions of the High Courts, concluded that since the notice did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars, the penalty imposed was unsustainable.

Therefore, the appeal of the assessee was allowed, and the penalty levied under section 271(1)(c) was set aside due to the lack of specificity in the penalty notice.