2018 (2) TMI 1361 - AT - Income Tax

Penalty under Income-tax Act deleted for defective notice. Favorable view to assessee in conflicting precedents.

The ITAT Kolkata held that the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961, could not be sustained due to a defective show cause ... Validity of penalty under section 271(1)(c) - Show cause notice under section 274 not specifying charge - Requirement to specify whether concealment or furnishing inaccurate particulars - Benefit of conflicting judicial views to the assesseeShow cause notice under section 274 not specifying charge - Validity of penalty under section 271(1)(c) - Requirement to specify whether concealment or furnishing inaccurate particulars - Benefit of conflicting judicial views to the assessee - Whether penalty under section 271(1)(c) can be sustained when the show cause notice under section 274 does not specify whether the charge is concealment of particulars of income or furnishing inaccurate particulars of income. - HELD THAT: - The Tribunal found that the impugned show cause notice issued under section 274 did not strike out the inapplicable portion and therefore failed to specify the precise charge - concealment or furnishing inaccurate particulars. Having examined the conflicting authorities, the Tribunal observed that two divergent lines of decisions exist; one line (including the Hon'ble Karnataka High Court) requires the notice to specify the charge and treats a non specific pro forma notice as invalid, while another line (including the Hon'ble Bombay and Patna High Courts) treats defects in form as not necessarily vitiating penalty proceedings provided the assessee was aware of the charge and not prejudiced. Applying the settled principle that where two views are available the view favorable to the assessee must be followed, the Tribunal respectfully followed the coordinate Bench decision which held that a show cause notice not specifying the charge vitiates the penalty. On that basis, the Tribunal held that the penalty under section 271(1)(c), confirmed by the CIT(A), could not be sustained and directed its deletion. [Paras 5, 6]Penalty under section 271(1)(c) deleted as the show cause notice under section 274 did not specify whether the charge was concealment or furnishing inaccurate particulars.Final Conclusion: The penalty imposed under section 271(1)(c) for AY 2008-09 is set aside and the appeal of the assessee is allowed. Issues Involved:1. Validity of penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961.2. Specificity of the charge in the show cause notice issued under Section 274 of the Act.Issue-Wise Detailed Analysis:1. Validity of Penalty Imposed under Section 271(1)(c) of the Income-tax Act, 1961:The appeal concerns the upholding of a penalty of Rs. 36,517/- imposed by the Assessing Officer (AO) under Section 271(1)(c) of the Income-tax Act, 1961. The penalty was imposed following a search and seizure operation conducted under Section 132(1) of the Act, during which it was discovered that the assessee had shown a loan from an individual which was later admitted by the assessee to be income from undisclosed sources. Consequently, the AO treated this amount as concealed income and imposed the penalty, which was subsequently confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].2. Specificity of the Charge in the Show Cause Notice Issued under Section 274 of the Act:The primary contention raised by the assessee was that the show cause notice issued under Section 274 read with Section 271 of the Act did not specify the exact charge, i.e., whether the penalty was for concealment of particulars of income or for furnishing inaccurate particulars of income. The notice used a standard format without striking out the irrelevant portion, thus not clearly informing the assessee of the specific charge.The assessee’s counsel referenced several judicial precedents, including:- CIT vs. SSA’s Emerald Meadows: The Karnataka High Court held that a penalty order is invalid if the show cause notice does not specify the charge.- CIT vs. Manjunatha Cotton and Ginning Factory: The Karnataka High Court emphasized the necessity of specifying the charge in the show cause notice.- CIT vs. Shri Samson Perinchery: The Bombay High Court followed the Karnataka High Court’s decision, invalidating penalties based on defective notices.- Suvaprasanna Bhattacharya vs. ACIT: The ITAT Kolkata followed the same principle.The Department's Representative (DR) opposed this view, citing various case laws, including:- Dr. Syamal Baran Mondal vs. CIT: The Calcutta High Court held that Section 271 does not mandate specific terms for recording satisfaction about concealment.- CIT vs. Kaushalya: The Bombay High Court ruled that the issuance of notice is an administrative device and a mistake in the notice’s language does not invalidate penalty proceedings.- Earthmoving Equipment Service Corporation vs. DCIT: The ITAT Mumbai did not follow the Karnataka High Court’s decision, emphasizing that the penalty was not solely based on the defective notice.However, the ITAT Kolkata, in the case of Jeetmal Choraria vs. ACIT, reiterated that the specificity of the charge in the notice is crucial. The Tribunal noted that where two views exist, the one favorable to the assessee should be followed. It concluded that the defective show cause notice in the present case rendered the penalty proceedings unsustainable.Conclusion:The ITAT Kolkata held that the penalty imposed and confirmed by the CIT(A) could not be sustained due to the defective show cause notice, which did not specify the charge against the assessee. The penalty was thus deleted, and the appeal of the assessee was allowed. The judgment emphasized adherence to the principle that where judicial precedents offer differing views, the view favorable to the assessee should prevail.