Invalid penalty proceedings due to unspecified default in show-cause notice; Revenue's appeal dismissed, assessee's appeal allowed.

The Tribunal invalidated penalty proceedings due to the unspecified default nature in the show-cause notice, leading to the deletion of the entire penalty. The Revenue's appeal was dismissed, and the assessee's appeal was allowed. The order was pronounced on 25th April 2019.

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Issues Involved:
1. Deletion of penalty on account of addition made under the head 'technical advisory fees'.
2. Disallowance of expenditure.
3. Confirmation of penalty on account of disallowance of excise duty paid.
4. Validity of penalty proceedings under Section 271(1)(c) due to unspecified nature of default in the show-cause notice.

Detailed Analysis:

Issue 1: Deletion of Penalty on Account of Addition Made Under the Head 'Technical Advisory Fees'
The Revenue was aggrieved by the deletion of penalty concerning the addition made under the head 'technical advisory fees' amounting to Rs. 6,57,45,000/-. The Assessing Officer (AO) had disallowed the 'technical advisory services' payment of Rs. 13,57,45,000/- to M/s. Shervani Industrial Syndicate, noting that no such fee was paid in the previous year. The assessee claimed that the payment was for technical support in battery manufacturing, supported by an agreement. However, the AO found no evidence of services rendered, such as travel, advice, evaluation, or technology provided, leading to the disallowance.

Issue 2: Disallowance of Expenditure
The AO also disallowed the expenditure of Rs. 6,57,95,000/-. The Tribunal, in quantum proceedings, provided partial relief by confirming the disallowance of Rs. 7 crore as done by the CIT(A), treating Rs. 5.65 crore as capital expenditure but allowing depreciation. The penalty was levied on the quantum of disallowance upheld by the first appellate authority.

Issue 3: Confirmation of Penalty on Account of Disallowance of Excise Duty Paid
The assessee claimed a deduction of Rs. 70,00,000/- u/s.43B for excise duty paid under protest. The AO disallowed this, stating that the liability was of M/s. Rialto Enterprises Pvt. Ltd., not the assessee. The CIT(A) confirmed the penalty on the disallowance u/s.43B of Rs. 70 lacs.

Issue 4: Validity of Penalty Proceedings Under Section 271(1)(c)
The assessee's counsel argued that the show-cause notice issued u/s.274 r.w.s. 271 did not specify the exact nature of the default, whether it was for concealment of income or furnishing inaccurate particulars. The Karnataka High Court in CIT vs. Manjunatha Cotton & Ginning Factory held that the grounds for penalty must be clear, and a vague notice violates the principles of natural justice. The Tribunal found that the AO did not specify the charge in the printed format notice, making the penalty proceedings invalid. The Hon'ble Supreme Court and various High Courts have upheld that the notice must clearly state the grounds for penalty.

Conclusion:
The Tribunal concluded that the penalty proceedings were invalid due to the unspecified nature of the default in the show-cause notice. Consequently, the entire penalty was deleted. The Revenue’s appeal was dismissed, and the assessee’s appeal was allowed.

Order Pronounced:
The order was pronounced in the open Court on 25th April, 2019.

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