2018 (12) TMI 202 - AT - Income Tax

Appeal allowed, penalty canceled due to vague notice. Clear grounds required for penalty imposition

The Tribunal allowed the appeal, canceling the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961, as the show-cause notice lacked ... Penalty u/s 271(1)(c) - addition under section 41(1) - defective notice - Held that:- As relying on the decision of the Hon’ble Karnataka High Court in the case of CIT & Another –vs.- Manjunatha Cotton & Ginning Factory [2013 (7) TMI 620 - KARNATAKA HIGH COURT] is squarely applicable in the present case and respectfully following the same, we hold that the show-cause notice issued by the Assessing Officer under section 274 for the year under consideration not being in accordance with law, the penalty order passed by the Assessing Officer in pursuance thereof is liable to be cancelled being invalid. We accordingly cancel the penalty imposed by the Assessing Officer under section 271(1)(c) and confirmed by the ld. CIT(Appeals) and allow the appeal of the assessee. Issues Involved:1. Validity of penalty order under section 271(1)(c) of the Income Tax Act, 1961.2. Specificity and clarity in the show-cause notice issued under section 274 of the Income Tax Act, 1961.Detailed Analysis:1. Validity of Penalty Order under Section 271(1)(c) of the Income Tax Act, 1961:The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-3, Kolkata, which confirmed a penalty of Rs. 83,813/- imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961. The assessee, a company engaged in the business of manufacturing and exporting industrial gloves, had filed its return of income declaring a total income of Rs. 10,56,626/-. The Assessing Officer, during the assessment, added Rs. 2,71,246/- to the total income by treating the trading liability as income under section 41(1) of the Act. Consequently, penalty proceedings under section 271(1)(c) were initiated, and the penalty was imposed for the alleged evasion of tax on the additional income.2. Specificity and Clarity in the Show-Cause Notice Issued under Section 274 of the Income Tax Act, 1961:The primary issue raised by the assessee was the validity of the penalty order due to the lack of specificity in the show-cause notice issued under section 274 of the Act. The notice did not clearly state whether the penalty was for 'furnishing inaccurate particulars of income' or 'concealing particulars of such income,' as the irrelevant portion was not struck off by the Assessing Officer. This ambiguity was argued to render the initiation of penalty proceedings invalid.The Tribunal referenced the case of Suvaprasanna Bhattacharya vs. ACIT, where a similar issue was addressed. The Tribunal in that case, relying on the decision of the Karnataka High Court in CIT & Another vs. Manjunatha Cotton & Ginning Factory (359 ITR 565), held that the notice under section 274 should specifically state the grounds for imposing the penalty. A generic printed form without striking out the irrelevant parts does not meet the legal requirements, as it fails to inform the assessee of the specific charge they need to contest.The Karnataka High Court's decision emphasized that the penalty proceedings must clearly state whether they are for concealment of income or furnishing inaccurate particulars. The court outlined several principles, including that the notice must be clear and specific, and initiating penalty proceedings on one ground but imposing the penalty on another is invalid. The court also highlighted that the penalty proceedings are distinct from the assessment proceedings and should be conducted with adherence to the principles of natural justice.Conclusion:In light of the above principles and the facts of the present case, the Tribunal concluded that the show-cause notice issued by the Assessing Officer was defective as it did not specify the grounds for the penalty. Consequently, the penalty order was deemed invalid. The Tribunal allowed the appeal, cancelling the penalty imposed by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals).Order:The appeal of the assessee was allowed, and the penalty imposed under section 271(1)(c) was cancelled. The order was pronounced in the open court on November 30, 2018.