2018 (5) TMI 960 - HC - Income Tax

Court dismisses penalties under Section 271(1)(c) of Income Tax Act for vague notices.

The High Court upheld the ITAT's decision to set aside penalties imposed under Section 271(1)(c) of the Income Tax Act, 1961 for assessment years 2002-03 ... Penalty u/s 271(1)(c) - non specification of charge - Held that:- The penalty levied under Section 271(1)(c) of the Act of 1961 is not sustainable in law, as no specific charge was levied in penalty show-cause notices. Considering the fact that the ground mentioned in show-cause notice would not satisfy the requirement of law, as notice was not specific, we are of the view that the learned Tribunal has rightly relying on the decision of CIT V/s. Manjunatha Cotton Ginning Factory (2013 (7) TMI 620 - KARNATAKA HIGH COURT) and CIT V/s. SSA'S Emerald Meadows (2016 (8) TMI 1145 - SUPREME COURT) rightly allowed the appeal of the assessee and set aside the order of penalty - Decided in favour of assessee Issues:Appeal against penalty under Section 271(1)(c) of the Income Tax Act, 1961 for assessment years 2002-03 to 2007-08 based on vague show-cause notice.Analysis:1. Common Question of Law: The appeals were filed against the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961 for various assessment years. The High Court noted that a common question of law was involved in all the appeals, and they were heard together for convenience.2. Background and Penalty Imposition: The penalty proceedings were initiated for the assessment year 2002-03 based on additional income declared by the assessee due to a search. The Assessing Officer levied a penalty under Section 271(1)(c) of the Act, citing the undisclosed income declared after the search. The Commissioner of Income Tax (Appeals) confirmed the penalty, stating that the provisions of Section 271(1)(c) along with Explanation 5A made the assessee liable for the penalty.3. Challenge and Tribunal's Decision: The assessee challenged the penalty imposition, arguing that the show-cause notice was vague and did not specify the charges clearly. The Income Tax Appellate Tribunal (ITAT) considered the appeals together and found that the penalty was not sustainable in law due to the lack of specific charges in the show-cause notices. Relying on legal precedents, the ITAT allowed the appeals and set aside the penalties.4. Legal Precedents and Observations: The High Court referred to the decision in CIT v. Manjunatha Cotton Ginning Factory, emphasizing the importance of a clear show-cause notice specifying the charges against the assessee. It was noted that vague notices could violate the principles of natural justice. The High Court also mentioned other cases where penalties were canceled due to defective show-cause notices.5. Court's Decision: After considering the arguments and legal precedents, the High Court upheld the ITAT's decision to set aside the penalties. It was concluded that the vague show-cause notices did not meet the legal requirements, and no substantial question of law arose in the appeals. The appeals against the penalties for the assessment years 2002-03 to 2007-08 were dismissed.This detailed analysis of the judgment highlights the key issues, background, legal arguments, and the court's decision regarding the penalty imposition under Section 271(1)(c) of the Income Tax Act, 1961 based on the vagueness of the show-cause notice.