ECHO ENTERTAINMENT PVT. LTD.,KOLKATA vs. ITO, WARD-1, KOLKATA

The facts of the case are that the assessee is a Company engaged in the business of entertainment and media. The assessment for A.Y. 2012-13 was completed under section 143(3) of the Income Tax Act on 25th March, 2015, wherein ld. Assessing Officer made an addition of Rs.1,56,00,000/- on account of short credit of sale consideration received from the sale of copy rights and cable rights. In this assessment, ld. Assessing Officer initiated the penalty proceedings under section 271(1)(c) of the Act for alleged concealment of income or furnishing inaccurate particulars of income. The assessee preferred an appeal before the ld. CIT(Appeals) against the addition made by the ld. Assessing Officer, where Rs.80,00,000/- relief was granted levying the addition of Rs.76,00,000/- sustained by the ld. CIT(Appeals) in the appellate order dated 31st December, 2016. Based on this sustained addition, ld. Assessing Officer imposed a penalty of Rs.16,03,200/- under section 271(1)(c) of the Act on 31st March, 2018.

Aggrieved with the penalty order, assessee filed an appeal before the ld. CIT(Appeals), but ld. CIT(Appeals) dismissed the appeal and confirmed the penalty.

Dissatisfied with the order, assessee has now come in appeal before this Tribunal. At the time of hearing, the main contention of the assessee is that initiation of penalty under section 271(1)(c)

(A.Y. 2012-2013) Echo Entertainment Private Limited was improper as the assessee neither concealed its income nor furnished inaccurate particulars of income. It is argued that ld. Assessing Officer failed to specify the exact charge i.e. whether penalty was imposed for concealment of income or for furnishing inaccurate particulars of income, which is necessary pre-condition under direct. The ld. A.R. further submitted that the notice issued under section 274 read with section 271(1)(c) did not clearly specify the nature of the alleged default. It was argued that penalty proceedings were initiated in a mechanical manner without proper application of mind, rendering the entire penalty proceeding invalid. The ld. A.R. also argued that in the absence of proper specification of charge, it should be set aside.

The ld. D.R., on the other hand, supported the orders of lower authorities stating that the assessee had indeed failed to submit correct evidence on record for sale consideration of copy rights and cable rights leading to an addition of Rs.76,00,000/-, which is justified for imposition of penalty under section 271(1)(c) of the Act. The ld. D.R. further argued that there was sufficient material to support the penalty order and that the assessee had not been able to explain the discrepancy in its income.

We have heard the rival contentions and gone through the record carefully. The primary issue before us is whether the penalty under section 271(1)(c) is sustainable in the light of the procedural lapse raised by the assessee. It is settled position of law that in the penalty proceedings under section 271(1)(c), ld. Assessing Officer must clearly specify whether the penalty is being (A.Y. 2012-2013) Echo Entertainment Private Limited levied for concealment of income or furnishing inaccurate particulars of income. In the present case, notice issued under section 274 read with section 271(1)(c) does not specify the nature of default. Several judicial precedence have held that when the charge is not clearly specified in the penalty notice, the penalty proceedings are rendered invalid. The Hon’ble Supreme Court in the case of CIT & Anr, -vs.- M/s SSA’s Emerald Meadows (2015) (11) TMI 1620 – Karnataka high Court, the Hon’ble Karnataka High Court in the case of CIT –vs.- Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Kar.) have held that vague notice under section 274 rendered the penalty proceedings are void ab initio. In the present case, ld. Assessing Officer failed to specify the exact charge whether concealment of income or furnishing inaccurate particulars of income, which is clearly procedural lapse, since the penalty proceedings initiated without clarify on this issue. The imposition of penalty cannot be sustained. Even on merits, the addition sustained by the ld. CIT(Appeals) related to disputed adjustment of sale consideration of copy rights and cable rights. There is no finding that the assessee deliberately concealed its income or furnished inaccurate particulars of income. The explanation officered by the assessee appears to be bonafide one and there is no evidence suggests the malafide intention on the part of assessee. In view of the foregoing discussions and considering the failure on the part of ld. Assessing Officer to specify the exact charge in the penalty notice under section 274, we are of the opinion that penalty imposed under section 271(1)(c) is not sustainable. Accordingly, we set aside the penalty imposed by the (A.Y. 2012-2013) Echo Entertainment Private Limited ld. Assessing Officer. The penalty imposed under section 271(1)(c) is hereby deleted and the appeal of the assessee is allowed.

In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 26/09/2024.