TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
When case Id is present, search is done only for this
of 
of 
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of of 
All Case Laws
of of All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of <h1>Penalty quashed as tax officer failed to specify concealment or inaccurate particulars under Section 271(1)(c)</h1> <h3>M/s Kumaon Mandal Vikash Nigam Ltd. Versus ACIT, Circle-3, Nanital.</h3> M/s Kumaon Mandal Vikash Nigam Ltd. Versus ACIT, Circle-3, Nanital. - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this appeal are:(a) Whether the initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961, without specifying the particular limb-either concealment of particulars of income or furnishing inaccurate particulars of income-renders the penalty notice and consequent penalty order invalidRs.(b) Whether the Assessing Officer's failure to strike off the irrelevant limb in the penalty notice issued under Section 274 read with Section 271(1)(c) demonstrates non-application of mind, thereby vitiating the penalty proceedingsRs.(c) Whether the penalty imposed under Section 271(1)(c) can be sustained when the notice initiating penalty proceedings is vague and does not clearly inform the assessee of the charge against it, despite the assessment order recording satisfaction of concealment or furnishing inaccurate particularsRs.2. ISSUE-WISE DETAILED ANALYSISIssue (a) and (b): Validity of penalty notice without specifying the limb of Section 271(1)(c)Relevant legal framework and precedents:Section 271(1)(c) of the Income Tax Act imposes penalty where the assessee has either concealed particulars of income or furnished inaccurate particulars of income. The two limbs carry distinct meanings and consequences. The procedure under Section 274 requires the Assessing Officer (AO) to issue a show-cause notice specifying the grounds for penalty. Judicial precedents emphasize the necessity of clarity in the notice:The Hon'ble Karnataka High Court in CIT vs. Manjunatha Cotton & Ginning Factory ([2013] 359 ITR 565) held that the penalty notice must clearly specify the limb under which proceedings are initiated. Failure to strike off irrelevant clauses indicates non-application of mind by the AO.The Hon'ble Supreme Court in Dilip N. Shroff vs. JCIT (291 ITR 519) observed that a standard proforma notice without deletion of irrelevant words implies the AO's uncertainty and non-application of mind, rendering the penalty invalid.The Hon'ble Supreme Court's dismissal of the Revenue's Special Leave Petition in SSA's Emerald Meadows (2016) 73 taxmann.com 248 (SC) affirmed the principle that omission to specify the limb in the penalty notice invalidates the proceedings.Court's interpretation and reasoning:The Tribunal examined the penalty notice dated 02.01.2017 and found it did not specify whether the penalty was for concealment of particulars of income or furnishing inaccurate particulars. The notice was issued in a stereotyped manner without striking off the irrelevant limb, resulting in ambiguity about the charge against the assessee. This lack of specificity prevented the assessee from effectively responding to the show-cause notice.The Tribunal relied heavily on the SSA's Emerald Meadows decision, which held that the penalty notice must clearly specify the limb under which penalty is proposed. The Tribunal reproduced the operative part of the Supreme Court judgment affirming that failure to specify the limb renders the notice and penalty invalid.The Tribunal further noted that the penalty provisions under Section 271(1)(c) require the AO to record satisfaction about concealment or furnishing inaccurate particulars before initiating penalty proceedings. The absence of such recorded satisfaction in the notice and failure to specify the limb indicated non-application of mind.Key evidence and findings:The penalty notice itself was the primary document examined. It contained the standard proforma language alleging concealment or furnishing inaccurate particulars but did not strike off the irrelevant limb. The assessment order recorded satisfaction of concealment and furnishing inaccurate particulars, but this was not reflected in the notice initiating penalty proceedings.Application of law to facts:Applying the legal principles from the cited judgments, the Tribunal held that the issuance of a penalty notice without specifying the limb under Section 271(1)(c) constitutes a procedural defect and non-application of mind. This procedural infirmity vitiates the penalty proceedings and the consequent penalty order.Treatment of competing arguments:The Revenue argued that the assessment order recorded satisfaction of concealment and furnishing inaccurate particulars, and thus the penalty was justified despite the notice's deficiency. The Tribunal rejected this argument, emphasizing that the penalty proceedings must be initiated by a valid notice specifying the limb to enable the assessee to respond effectively. The absence of such specification cannot be cured by the assessment order alone.Conclusions:The Tribunal concluded that the penalty notice was invalid due to failure to specify the limb of Section 271(1)(c) under which penalty was proposed. This procedural defect led to quashing of the penalty order.Issue (c): Sustenance of penalty despite vague noticeRelevant legal framework and precedents:The principles established in the aforementioned cases apply here. The Supreme Court and High Courts have consistently held that a valid penalty notice must clearly inform the assessee of the charge. Without this, the penalty order cannot be sustained.Court's interpretation and reasoning:The Tribunal observed that the vague notice deprived the assessee of a meaningful opportunity to defend itself. The penalty provisions are penal in nature and must be strictly construed. The Tribunal held that the non-specific notice amounted to non-application of mind and was bad in law.Key evidence and findings:The notice's language and format demonstrated a failure to apply mind. The assessee's submissions and reliance on judicial precedents reinforced this view.Application of law to facts:The Tribunal applied the strict procedural requirements for penalty proceedings and found that the vague notice was insufficient to sustain the penalty.Treatment of competing arguments:The Revenue's contention that the assessment order's recorded satisfaction justified the penalty was rejected as insufficient to cure the defective notice.Conclusions:The Tribunal quashed the penalty order on the ground that the vague penalty notice was invalid and the penalty could not be sustained.3. SIGNIFICANT HOLDINGSThe Tribunal held:'As per Section 271(1)(c) of the Act, the AO should record his satisfaction that the assessee has either concealed the income or furnished inaccurate particulars of his income. From the perusal of the notice issued u/s.274(1) r.w.s.271(1)(c) of the Act as reproduced above, it was not specifically pointed out as to whether the assessee has concealed the particulars of income or furnished the inaccurate particulars of income. Therefore, the penalty proceedings initiated without recording the satisfaction is liable to be quashed.''The Hon'ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory reported in [2013] 359 ITR 565 (Kar) observed that the levy of penalty has to be clear as to the limb under which it is being levied. As per Hon'ble High Court, where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. The Hon'ble High Court held that the standard proforma of notice under section 274 of the Act without striking of the irrelevant clauses would lead to an inference of non-application of mind by the Assessing Officer.''The Hon'ble Supreme Court in the case of Dilip N. Shroff vs. JCIT, 291 ITR 519(SC) has also noticed that where the Assessing Officer issues notice under section 274 of the Act in the standard proforma and the inappropriate words are not deleted, the same would postulate that the Assessing Officer was not sure as to whether he was to proceed on the basis that the assessee had concealed the particulars of his income or furnished inaccurate particulars of income. According to the Hon'ble Supreme Court, in such a situation, levy of penalty suffers from non-application of mind.''In the background of the aforesaid legal position and having regard to the manner in which the Assessing Officer has issued notices under section 274 r.w.s. 271(1)(c) of the Act without striking off the irrelevant words, as reproduced above, the penalty proceedings shows the non-application of mind by the Assessing Officer and is, thus, unsustainable.''In view of the facts and circumstances of the case, particularly looking to the fact that the AO has failed to record the satisfaction about the specific limb of section 271(1)(c) at the time of initiation of penalty proceedings u/s. 271(1)(c) of the Act, therefore, the consequent order of penalty u/s. 271(1)(c) of the Act is hereby quashed.'The core principles established are:Penalty proceedings under Section 271(1)(c) must be initiated by a valid notice specifying the particular limb-concealment of particulars of income or furnishing inaccurate particulars of income.Failure to specify the limb or to strike off irrelevant clauses in the penalty notice amounts to non-application of mind and renders the proceedings invalid.The assessment order's recorded satisfaction cannot cure the defect in the penalty notice.Strict compliance with procedural requirements in penalty proceedings is mandatory due to their penal nature.The final determination was to allow the appeal and quash the penalty order levied under Section 271(1)(c) of the Income Tax Act for Assessment Year 2013-14 due to invalid initiation of penalty proceedings.
TaxTMI 
TaxTMI 
