Non striking of limb of penalty u/s 271(1)(c). Appeal to be restored on favourable judgment by SC

Non striking of applicable limb of penalty u/s 271(1)(c) in notice. ITAT permits restoration of appeal if issue is decided by Supreme Court in favour of Revenue

ABCAUS Case Law Citation:
ABCAUS 3269 (2020) (02) ITAT

In a recent judgment, Tribunal had dealt with a challenge to the validity  of  penalty order on account of defective show cause notice without any specific charge for levy of penalty  u/s  271(1)(c)  issued by the AO in view  of the decision of  Hon’ble Karnataka  High  Court.

The case of the assessee was that the penalty so imposed by the Assessing Officer (AO) and sustained by the CIT(A) on the  basis of such defective  notice  issued  u/s 271(l)(c)  which  did  not specify  the particular  limb  i.e.  whether it  was  for  concealment  of  particulars of  income  or  furnishing  of inaccurate particulars of income, was illegal.

The Tribunal following its own decision on the issue, allowed the grounds of appeal. 

However the Tribunal, in view of the fact that the issue  of  striking of the  relevant  clause (concealment  of penalty  or  inaccurate  of  particulars  of  income)  is pending for decision by  the Hon’ble Supreme Court, permitted the revenue to  move  appropriate  application  for  restoration  of the appeal,  if  issue  is decided by the Hon’ble Supreme Court in favour the revenue. 

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ABCAUS Note:

Section 271(1)(c) of the Income Tax Act, 1961 (the Act) prescribes penalty for concealment of income or furnishing inaccurate particulars of income.

Non-striking off / non-specifying the relevant limb of the penalty in the show cause notice (SCN) u/s 274 of the Act has been a bone of contention. In majority of cases, following the landmark judgment of the Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory and  M/s SSA’s Emerald Meadows various Courts/Tribunals have held such notices as illegal and void ab initio and penalty proceedings have been quashed. to quote a few:

It is notable that in 2016, the Hon’ble Supreme Court had dismissed the Special Leave Petition (SLP) of the Income Tax Department against the judgment delivered in the case of SSA’s Emerald Meadows.

Since then, appeals/additional grounds of the assesses have been allowed by the Courts/Tribunals resulting in a favourable decision.

However in many cases a different view was taken against the assessee as under:

• Specifying/Striking off limb of penalty section 271(1)(c) not applicable in cases of surrender by assessee
• Application of correct limb of penalty u/s 271(1)(c) is a question of fact and not a question of law
• Validity of Penalty notice non striking off relevant limb u/s 271(1)(c) upheld when subsequent notices sent by AO were not challenged
• Non striking off clause in penalty notice u/s 271(1)(c) do not invalidate it
  
• Penalty U/s 271(1)(c)-Unspecified charge in notice can be made good with a clear-cut finding in penalty order

However, two important events took place in 2018 when the Hon’ble Supreme Court dismissed a SLP filed by the assessee against the judgment of the Hon’ble Madras High Court holding that non-striking off the penalty notice had caused no prejudice to the assessee.

However, it is important to note that dismissal of SLP in both the above said cases was by a non speaking order.

Couple of days later after the said dismissal against the judgment of the Madras High Court, the Hon’ble Supreme Court admitted a SLP of the Income Tax Department against the one judgment of the Hon’ble Karnataka High Court which following its own judgment in Manjunatha case. The Department challenged that the interpretation by the Karnataka High Court of the provisions of Section 271(1)(C) of the Act was contrary to the judgment of the Hon’ble Supreme Court.

Presently, the said SLP is pending and in view of the merger of the respondent assessee bank with SBI it is going to take some time before the hearings reach to a conclusion.

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