2016 (10) TMI 416 - AT - Income Tax

Invalid penalty under Income Tax Act due to defective notice; penalty canceled for lack of clarity.

Maitree Biswas Versus D.C.I.T, Cir-51, Kolkata

The Tribunal found the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961 invalid due to a defective notice that did not specify the ... Penalty imposed u/s. 271(1)(c) - validity of notice - Held that:- In the present case, the notice dt: 27-12-2010 issued to Assessee by the AO U/Sec 274 r/w 271 of the Act does not show on which ground the penalty is sought to be imposed, hold that the order dt: 24-06-2011 levying penalty is not valid. See CIT & Anr. v. Manjunatha Cotton and Ginning Factory [2013 (7) TMI 620 - KARNATAKA HIGH COURT ] - Decided in favour of assessee Issues Involved:1. Validity of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.2. Defective notice under Section 274 read with Section 271.3. Grounds for imposing penalty for concealment of income or furnishing inaccurate particulars of income.Detailed Analysis:1. Validity of the Penalty Imposed Under Section 271(1)(c):The appeal concerns the confirmation of a penalty imposed by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 2008-09. The AO determined the total income of the assessee at Rs. 23,34,605/- and added the amount claimed as a discount on the sale of defective machines, which was not allowed due to lack of evidence. Consequently, a penalty of Rs. 7,84,087/- was levied for willful concealment and furnishing inaccurate particulars of income. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the penalty, stating that the assessee could not prima facie prove the bona fide nature of her claim. The assessee contended that the appeal should be kept pending until the disposal of the quantum appeal before the Tribunal, which was not accepted by the CIT(A).2. Defective Notice Under Section 274 Read with Section 271:The assessee raised an additional ground, arguing that the notice issued under Section 274 read with Section 271 was defective. It was contended that the notice did not specify whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. This argument was supported by the decision of the Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, which held that such notices must clearly state the grounds for imposing the penalty. The Tribunal admitted this additional ground with the consent of both parties.3. Grounds for Imposing Penalty for Concealment of Income or Furnishing Inaccurate Particulars of Income:The Tribunal referred to the Karnataka High Court's decision in Manjunatha Cotton and Ginning Factory, which established that a notice under Section 274 must specifically state whether the penalty is for concealment of income or for furnishing inaccurate particulars of income. The Tribunal also cited the ITAT Kolkata's decision in Suvaprasanna Bhattacharya Vs. ACIT, which followed the Karnataka High Court's ruling. It was noted that the AO's notice did not strike out the irrelevant part, making it unclear whether the penalty was for concealment or inaccurate particulars. The principles laid down by the Karnataka High Court emphasized the necessity for clarity in the grounds for penalty and the strict construction of penalty provisions to ensure the assessee's right to contest the proceedings.Conclusion:The Tribunal concluded that the notice issued to the assessee was defective as it did not specify the grounds for imposing the penalty. Following the Karnataka High Court's decision and the ITAT Kolkata's precedent, the Tribunal held that the penalty order was invalid. Consequently, the penalty of Rs. 7,84,087/- was canceled. The appeal of the assessee was allowed, and the order was pronounced in open court on 24/08/2016.