1988 (2) TMI 55 - HC - Income Tax

Appellate authority modifies income assessment due to errors; penalty notice invalid without specific charges.

The appellate authority found errors in the original assessment, leading to modifications in the assessed income. The absence of a specific charge of ... Penalty Issues: Challenge to notice under section 274 read with section 271 of the Income-tax Act for imposing penalty based on alleged concealment of income or furnishing inaccurate particulars.Analysis:The judgment involves a challenge to a notice dated March 19, 1981, issued under section 274 read with section 271 of the Income-tax Act. The notice directed the petitioner to show cause why a penalty should not be imposed for concealing income particulars or furnishing inaccurate income particulars. The petitioner argued that the notice was flawed as it lacked a specific charge of non-supply of material as required by section 271(1)(c)(iii) of the Act. This section mandates quantification of income before initiating penalty proceedings. The original assessment order for the petitioner was passed under section 143(3) of the Act, and subsequent appeals led to modifications in the assessed income. The appellate order significantly altered the original assessment, leading to the conclusion that no penalty could be imposed without a specific charge of concealment or inaccurate particulars of income.The appellate authority found errors in the original assessment, such as incorrect estimations of consultation fees and car expenses, leading to modifications in the assessed income. The petitioner's counsel contended that the penalty notice could not be justified after the appellate order significantly altered the original assessment. The absence of a specific charge of concealment or inaccurate particulars of income, as required by law, rendered the penalty notice invalid. The respondents' counsel also acknowledged the futility of supporting the notice in light of the appellate order that practically replaced the original assessment without quantifying the penalty amount.The judgment emphasized that imposing a penalty under section 271(1)(c)(iii) necessitates a finding of concealment or furnishing inaccurate particulars of income. Since no such offense was established in this case, the penalty notice was deemed unjustified. Consequently, the writ petition challenging the notice was upheld, and a writ of certiorari was issued to quash the impugned notice dated March 13, 1981. The judgment clarified that this ruling did not prevent the respondents from taking lawful actions if advised and permitted by the law.