2016 (11) TMI 1728 - AT - Income Tax

Penalty under Income Tax Act overturned due to deficient notice

The Tribunal set aside the penalty of Rs. 25,09,949/- imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961, due to ... Penalty u/s 271(1)(c) - Defective notice u/s 274 - whether it is for concealment of income or for furnishing of incorrect particulars of income? - HELD THAT:- In New Sorathia Engg. Co [2006 (1) TMI 71 - GUJARAT HIGH COURT] it has been held that ‘where penalty order and order of Commissioner (Appeals) showed that no clear-cut finding had been reached as to whether penalty under section 271(1)(c) was being levied for concealment of particulars of income by assessee or whether any inaccurate particulars of income had been furnished, order of penalty could not be sustained. In CIT vs. Smt. Kaushalya [1995 (1) TMI 25 - BOMBAY HIGH COURT] has held that ‘The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charges he had to face. In this background, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified.’ We hold that the notice issued by the AO u/s 274 r.w.s. 271 for the AY 2003-04 for initiating penalty proceeding u/s 271(1)(c) of the Act in the present case is invalid. The order of the CIT(A) directing the AO to impose penalty u/s 271(1)(c) is thus set aside. Appeal filed by the assessee is allowed. Issues:Penalty under section 271(1)(c) of the Income Tax Act, 1961 for concealment of income and furnishing inaccurate particulars of income.Analysis:1. The appeal was against the order of the Commissioner of Income Tax (Appeals)-38, Mumbai, related to the assessment year 2004-05 under section 271(1)(c) of the Income Tax Act, 1961. The appellant challenged the penalty imposed by the Assessing Officer (AO) on various grounds.2. The grounds raised by the assessee included challenges to the penalty on the disallowance of loss on shares, treatment of agricultural loss as income from other sources, and procedural irregularities in the penalty order. The AO had imposed a penalty of Rs. 25,09,949/- under section 271(1)(c) based on the assessment completed under section 153C r.w.s 143(3).3. The appellant argued that the penalty notice did not specify whether it was for concealment of income or furnishing inaccurate particulars, as required by law. Citing legal precedents, the appellant contended that the notice must clearly state the grounds for penalty under section 271(1)(c) to ensure natural justice and compliance with legal provisions.4. The Department supported the penalty upheld by the Commissioner of Income Tax (Appeals), amounting to Rs. 25,09,949/- under section 271(1)(c) of the Act. However, the appellant's counsel highlighted the inadequacy of the penalty notice in specifying the grounds for penalty, as per legal requirements.5. Upon review, the Tribunal found merit in the appellant's argument regarding the deficiency in the penalty notice issued by the AO. The notice did not clearly state whether the penalty was for concealing income or furnishing inaccurate particulars, contravening legal standards and principles of natural justice.6. Referring to legal precedents, including judgments by various High Courts, the Tribunal emphasized the necessity of a clear and specific mention of grounds in the penalty notice under section 271(1)(c). In line with these precedents, the Tribunal held the penalty notice issued in this case as invalid due to its ambiguity regarding the grounds for penalty.7. Consequently, the Tribunal set aside the penalty of Rs. 25,09,949/- imposed by the AO under section 271(1)(c) of the Act, based on the invalid penalty notice. The other grounds raised by the assessee against the penalty levy were not adjudicated, given the invalidity of the notice.8. Ultimately, the Tribunal allowed the appeal filed by the assessee, ruling in favor of the appellant and pronouncing the order in open court on 28/11/2016.