2016 (8) TMI 1224 - AT - Income Tax

Invalid penalty notice under Section 271(1)(c) canceled for lack of specificity.

Chandra Narayan Mohta Versus I.T.O Ward 34 (3), Kolkata

The Tribunal found the penalty notice issued to the assessee invalid as it lacked specificity in stating the grounds for penalty under Section 271(1)(c) ... Penalty u/s. 271(1)(c) - validity of notice - Held that:- The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory (2013 (7) TMI 620 - KARNATAKA HIGH COURT)has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of income or for furnishing inaccurate particulars of income. Thus in the present case we hold that the order dt: 29-06-2011 levying penalty is not valid. - Decided in favour of assessee. Issues Involved:1. Legality of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.2. Whether the penalty notice issued under Section 274 read with Section 271(1)(c) was valid.3. The requirement for specificity in the penalty notice regarding the grounds for imposing the penalty.4. The applicability of judicial precedents on the validity of penalty notices.Detailed Analysis:1. Legality of the Penalty Imposed Under Section 271(1)(c) of the Income Tax Act, 1961:The appeal was directed against the order of the Commissioner of Income Tax (Appeals), which confirmed the penalty imposed by the Assessing Officer (AO) under Section 271(1)(c). The AO had determined that the assessee failed to substantiate commission payments, treating them as bogus expenses, and thus imposed a penalty of Rs. 1,21,491/-. The CIT(A) upheld this penalty, leading to the present appeal.2. Whether the Penalty Notice Issued Under Section 274 Read With Section 271(1)(c) Was Valid:The crux of the appeal was whether the penalty notice issued under Section 274 read with Section 271(1)(c) was valid. The assessee argued that the notice did not specify whether the penalty was for 'concealment of income' or 'furnishing inaccurate particulars of income,' thus making it defective. The Karnataka High Court in CIT & Anr. v. Manjunatha Cotton and Ginning Factory held that such notices must clearly state the grounds for penalty to ensure the assessee can adequately respond.3. Requirement for Specificity in the Penalty Notice Regarding the Grounds for Imposing the Penalty:The Tribunal noted that the AO had issued a generic penalty notice without striking out the irrelevant parts, failing to specify the exact charge against the assessee. This lack of specificity was deemed to violate the principles of natural justice, as it did not allow the assessee to know the exact grounds on which the penalty was being imposed. The Tribunal emphasized that the penalty proceedings must be clear and unambiguous, as laid down by the Karnataka High Court.4. Applicability of Judicial Precedents on the Validity of Penalty Notices:The Tribunal referred to the decision of the Co-ordinate Bench of ITAT, Kolkata, in Suvaprasanna Bhattacharya Vs. ACIT, which followed the Karnataka High Court's ruling. The Tribunal reiterated that penalty proceedings must clearly state whether they are for 'concealment of income' or 'furnishing inaccurate particulars of income.' The failure to do so renders the penalty notice defective and the subsequent penalty invalid.Conclusion:The Tribunal concluded that the penalty notice issued to the assessee was defective as it did not specify the grounds for penalty. Consequently, the penalty order dated 29-06-2011 was held invalid. The Tribunal allowed the appeal, canceling the penalty of Rs. 1,21,491/- imposed by the AO and confirmed by the CIT(A).Order Pronounced:The appeal of the assessee was allowed, and the order was pronounced in open court on 24/08/2016.