2020 (2) TMI 712 - AT - Income Tax

Invalid Penalty Proceedings Due to Defective Notices; Penalties Cancelled and Assessee Appeals Allowed

Shri K. Ramaswamy Versus The Assistant Commissioner of Income Tax, Circle – 2 (1), Mysuru

Shri K. Ramaswamy Versus The Assistant Commissioner of Income Tax, Circle – 2 (1), Mysuru - TMI Issues Involved:1. Validity of penalty proceedings under Section 271(1)(c) of the Income-tax Act, 1961.2. Defect in the show cause notice under Section 274 of the Income-tax Act, 1961.3. Recording of satisfaction by the Assessing Officer before initiating penalty proceedings.Detailed Analysis:1. Validity of Penalty Proceedings under Section 271(1)(c):The appeals concern the imposition of penalties under Section 271(1)(c) of the Income-tax Act, 1961, which were confirmed by the CIT(Appeals). The penalties were imposed because the assessee filed returns only after a survey and subsequent notices under Section 148. The Tribunal examined whether the penalties were justified given the circumstances under which the returns were filed.2. Defect in the Show Cause Notice under Section 274:The Tribunal scrutinized the show cause notices issued under Section 274 of the Act. The notices did not specify whether the penalty was for 'concealing particulars of income' or 'furnishing inaccurate particulars of income,' which is a requirement as per the decision in CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 218 Taxman 423 (Kar.). The Tribunal noted that the failure to strike out the irrelevant portion in the show cause notices rendered them defective. This defect was deemed fatal to the penalty proceedings, as it violated the principles of natural justice by not clearly informing the assessee of the specific charge.3. Recording of Satisfaction by the Assessing Officer:The Tribunal also addressed the issue of whether the Assessing Officer (AO) had properly recorded satisfaction before initiating penalty proceedings. The Tribunal referred to the decision in CIT V. MWP Ltd. [2014] 41 taxmann.com 496 (Kar.), which held that a mere statement in the assessment order that 'penalty proceedings are initiated separately' does not constitute a proper recording of satisfaction. The Tribunal found that the AO's statements in the assessment orders, such as 'Penalty proceedings u/s. 271(1)(c), 271B, separately,' did not reflect a clear and unambiguous direction to initiate penalty proceedings, thus failing to meet the legal requirements.Conclusion:The Tribunal concluded that the penalty proceedings were invalid due to the defective show cause notices and the lack of proper recording of satisfaction by the AO. The penalties imposed were therefore directed to be cancelled. The appeals of the assessee were allowed, and the penalties were annulled.Pronouncement:The decision was pronounced in the open court on February 12, 2020.