2021 (7) TMI 669 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice u/s 274 - non specification of charge - HELD THAT - As decided in Sahara India Life Insurance Company Limited case 2019 (8) TMI 409 - DELHI HIGH COURT Notice issued by the learned Assessing Officer would be bad in law if it did not specify under which limb of section 271(1)(c) of the Act the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or for furnishing of inaccurate particulars thereof 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:
Validity of penalty notice under section 274 read with section 271 of the Income-tax Act, 1961.

Analysis:
The case involved an appeal by the assessee against the order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2012-13. The assessee had filed a return of income declaring nil income after a search and seizure action was carried out. Subsequently, the Assessing Officer imposed a penalty under section 271(1)(c) of the Act. The main contention raised was regarding the validity of the penalty notice issued by the Assessing Officer, as it did not specify whether the penalty was for "concealment" or "inaccurate particulars." The assessee argued that this rendered the notice vague, citing relevant case law to support their position.

The Hon'ble Karnataka High Court's decision in the case of CIT vs. Manjunatha Cotton & Ginning Factory was referred to, emphasizing the importance of specifying the grounds for penalty proceedings. It was highlighted that the penalty proceedings should be based on the same grounds for which the assessee was called upon to answer. The omission to explicitly mention the grounds for penalty initiation was deemed as a violation of natural justice principles, leading to the penalty order being considered invalid.

Furthermore, the decision in Commissioner of Income Tax v. SSA's Emerald Meadows by the Hon'ble Karnataka High Court reiterated the necessity of explicitly stating the grounds for penalty initiation. The High Court dismissed the appeal filed by the Revenue, upholding the Tribunal's decision that the notice was defective for not specifying the grounds under section 271(1)(c) of the Act.

Based on the above legal precedents and the facts of the case, the ITAT Delhi held that the defective notice issued by the Assessing Officer under section 274 read with 271 of the Act rendered the assumption of jurisdiction to levy the penalty invalid. Consequently, the ITAT directed the Assessing Officer to delete the penalty imposed on the assessee. The appeal of the assessee was allowed, emphasizing the importance of a proper and specific notice for initiating penalty proceedings under the Income-tax Act, 1961.