2021 (7) TMI 1022 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice u/s 274 - non specification of charge - whether penalty proceedings had been initiated i.e., whether for concealment of particulars of income or for furnishing of inaccurate particulars ? - HELD THAT - In PCIT vs. Sahara India Life Insurance Company Limited case 2019 (8) TMI 409 - DELHI HIGH COURT upheld the view taken that the 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. 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. Appeal of assessee is allowed.

Summary

Issues involved:
- Jurisdiction of Assessing Officer to levy penalty under section 271(1)(c) based on notice specification.
- Validity of penalty notice specifying charge of concealment or furnishing inaccurate particulars.
- Consideration of quantum appeal outcome in penalty imposition.

Jurisdiction of Assessing Officer to levy penalty under section 271(1)(c) based on notice specification:
The case involved an appeal by the assessee against a penalty imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act. The penalty was based on various additions and disallowances made during the assessment, which were partly confirmed by the Commissioner of Income Tax (Appeals). The key contention raised by the assessee was the defective penalty notice issued by the Assessing Officer, which did not specify the charge under which the penalty was proposed to be levied - whether for concealment of income particulars or furnishing inaccurate particulars. The absence of such specification in the notice was argued to vitiate the assumption of jurisdiction by the Assessing Officer to levy any penalty.

Validity of penalty notice specifying charge of concealment or furnishing inaccurate particulars:
The written synopsis filed by the authorized representative challenged the validity of the penalty notice, citing relevant case laws such as CIT vs. Manjunatha Cotton & Ginning Factory and Commissioner of Income Tax v. SSA's Emerald Meadows. These cases emphasized the importance of specifying the grounds for penalty in the notice to afford the assessee an opportunity to respond adequately. The Hon'ble Karnataka High Court rulings highlighted that penalty proceedings should be initiated and imposed based on the same grounds specified in the notice. The absence of such specificity in the notice was deemed to be a fatal defect, rendering the penalty unsustainable.

Consideration of quantum appeal outcome in penalty imposition:
Additionally, the assessee contended that the penalty imposed by the Commissioner of Income Tax (Appeals) did not consider the outcome of the quantum appeal. The Tribunal's order in the quantum appeal for the same assessment year revealed that major additions were deleted, and the issue regarding a specific disallowance was remanded back to the Assessing Officer. This aspect was crucial in determining the sustainability of the penalty imposed. The Tribunal, considering the quantum appeal outcome and the defects in the penalty notice, directed the Assessing Officer to delete the penalty in question, ultimately allowing the appeal of the assessee.

This detailed analysis of the judgment showcases the critical issues of jurisdiction, validity of penalty notice, and the impact of quantum appeal outcomes in determining the imposition of penalties under the Income-tax Act. The case law references and legal arguments presented by both parties underscore the importance of procedural compliance and fair assessment practices in penalty proceedings.