2016 (2) TMI 1215 - AT - Income Tax

Tribunal overturns penalty for lack of specificity in notice

Smt. Parmeshwari Devi Versus ITO, Ward 21 (2), New Delhi

The tribunal allowed the appeal, quashing the penalty imposed under section 271(1)(c) for the Assessment Year 2011-12. The decision was based on the lack ... Penalty levied u/s 271(1)(c) - non specification of charge - defective notice - Held that:- Notice issued by the Assessing Officer under Section 274 r.w.s. 271(l)(c) to be bad in law as it did not specify which limb of Section 271(l)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of COMMISSIONER OF INCOME TAX -VS- MANJUNATHA COTTON AND GINNING FACTORY (2013 (7) TMI 620 - KARNATAKA HIGH COURT) - Also see SHRI HAFEEZ S CONTRACTOR VERSUS ASSTT. COMMISSIONER OF INCOME TAX –CENTRAL CIRCLE-44, MUMBAI [2015 (9) TMI 1169 - ITAT MUMBAI] - Decided in favour of assessee. Issues:Appeal against penalty u/s 271(1)(c) of the Income Tax Act, 1961 - Lack of specification of charge in show cause notice - Quashing of penalty based on legal precedents.Analysis:1. Issue of Lack of Specification in Show Cause Notice:The appeal was filed against the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. The key contention was that the Assessing Officer (AO) did not specify the charge in the show cause notice, whether it was for non-compliance of notice u/s 142(1)/143(2) of the Act, concealment of income, or furnishing inaccurate particulars of income. The absence of a clear specification led the tribunal to quash the penalty levied based on the judgment of the Hon'ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton Ginning Factory. This judgment emphasized that the conditions stipulated in Section 271(1)(c) must be discernible from the assessment order or order of the Appellate Authority for penalty proceedings to be initiated. Additionally, the tribunal cited the ITAT Mumbai Bench's decision in Shri Hafeez S. Contractor vs. ACIT, stating that penalties cannot be imposed when specific charges are not mentioned in the notice.2. Legal Principles Governing Penalty Proceedings:The judgment highlighted several legal principles regarding the imposition of penalties under section 271(1)(c) of the Act. It clarified that penalty imposition is not automatic, even if tax liability is admitted. The mere agreement for an addition does not imply concealment if the explanation provided by the assessee is not false. The judgment emphasized that penalty proceedings are distinct from assessment proceedings and that findings in assessment proceedings do not bind penalty proceedings. It stressed the importance of clear directions in initiating penalty proceedings and the necessity for grounds specified in the notice under Section 274 of the Act. The tribunal underscored that penalty proceedings must be based on specific charges and that principles of natural justice must be upheld to ensure fairness.3. Outcome of the Appeal:Ultimately, the tribunal allowed the assessee's appeal, ruling in favor of quashing the penalty imposed under section 271(1)(c) for the Assessment Year 2011-12. The decision was based on the lack of specificity in the show cause notice and the failure to adhere to the legal requirements outlined in the judgments referenced during the proceedings. The order was pronounced in the Open Court on 15th February 2016, marking the conclusion of the case.By meticulously examining the issues raised, the tribunal's analysis, and the legal principles applied, the judgment provided a comprehensive overview of the considerations involved in challenging penalties under the Income Tax Act, ensuring procedural fairness and legal compliance throughout the decision-making process.