2024 (8) TMI 336 - AT - Income Tax

Penalty imposed u/s 271(1)(c) - Estimation of trading addition - HELD THAT - AO is required to record his specific satisfaction as regards the existence of any one of those grounds on which he is satisfied that penalty proceedings are attracted and this satisfaction should be made known to the assessee through the SCN u/s 274. For one single item of income being the estimated trading addition, legally there cannot be a charge viz. concealment of income as also of furnishing of inaccurate particulars. This does not meet with the requirement of law. As in the case of CIT vs. M/s Manjunatha Cotton Ginning Factory Ors. 2013 (7) TMI 620 - KARNATAKA HIGH COURT held that sending printed form where all the grounds mentioned in S. 271 would not satisfy the requirement of law. The assessee should know the ground which he has to meet specifically, otherwise, the principle of natural justice is offended on the basis of such proceedings, no penalty could be could be. We hold that the notices issued u/s 274 r.w.s. 271(1)(c) is not valid and the same is quashed. Decided in favour of assessee.

Issues:
1. Validity of penalty order u/s 271(1)(c)
2. Justification of penalty imposition based on estimated trading addition
3. Adequacy of show cause notice for penalty imposition

Analysis:

Issue 1: Validity of penalty order u/s 271(1)(c)
The appeal challenged the penalty order u/s 271(1)(c) dated 19-03-2020, contending it was unlawful and lacked jurisdiction. The appellant argued that the penalty of Rs. 13,25,297/- was erroneously imposed by the Assessing Officer (AO) and confirmed by the ld. CIT(A). The appellant claimed the show cause notice issued under section 274 r.w.s. 271(1)(c) was vague and contrary to the law. However, the Tribunal upheld the penalty, stating that the AO was justified in rejecting the books of accounts under section 145(3) and making a best judgment order due to discrepancies in the accounts. The Tribunal dismissed the grounds disputing the penalty imposition, emphasizing that the addition was not estimated but based on specific discrepancies pointed out by the AO.

Issue 2: Justification of penalty imposition based on estimated trading addition
During the proceedings, the appellant argued for the deletion of the penalty confirmed by the ld. CIT(A). The ld. DR supported the orders of the lower authorities. The Tribunal observed that the penalty was imposed based on the trading addition made by the AO, which was partly sustained by the ld. CIT(A). However, the Tribunal noted that no specific item of income related to concealment or inaccurate particulars was identified. The Tribunal agreed with the appellant's contention that penalties cannot be imposed solely on estimates. Citing relevant case laws, including CIT vs. Krishi Tyre Retreading & Rubber Industries, the Tribunal emphasized that penalties under section 271(1)(c) require clear proof of the assessee's conduct, which was lacking in this case. The Tribunal concluded that the penalty was based on estimates and lacked positive fact findings, leading to the quashing of the penalty.

Issue 3: Adequacy of show cause notice for penalty imposition
The Tribunal highlighted the importance of a valid show cause notice for penalty imposition. It noted that the AO's notice lacked specificity regarding the grounds for penalty, violating the principles of natural justice. Referring to the case of CIT vs. M/s Manjunatha Cotton & Ginning Factory & Ors., the Tribunal emphasized that the assessee must be informed of the specific grounds for penalty. As the show cause notice did not meet this requirement, the Tribunal deemed it invalid and subsequently deleted the consequential levy of penalty.

In conclusion, the Tribunal allowed the appeal, quashing the penalty order u/s 271(1)(c) based on the lack of concrete evidence, the imposition of penalties on estimated grounds, and the inadequacy of the show cause notice.

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