2018 (12) TMI 454 - AT - Income Tax

Defective notice voids tax penalty: Tribunal cancels Rs. 5,99,458 penalty citing lack of charge specificity.

The Tribunal held that the penalty imposed under Section 271(1)(c) of the Income Tax Act was not sustainable due to a defective notice that failed to ... Penalty u/s 271(1)(c) - defective notice - non specification - Held that:- We find that the notice dt. 18-03-2014 issued u/s 274 r.w.s 271 of the Act, copy of the same is on record, does not specify the charge of offence committed by the assessee viz whether had concealed the particulars of income or had furnished inaccurate particulars of income. See THE COMMISSIONER OF INCOME TAX & OTHS. VERSUS M/S MANJUNATHA COTTON AND GINNING FACTORY & OTHS., M/S. V.S. LAD & SONS, [2013 (7) TMI 620 - KARNATAKA HIGH COURT]. Show cause notice issued in the present case u/s 274 does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 does not strike out the inappropriate words. We are of the view that imposition of penalty cannot be sustained. The plea of the ld. Counsel for the assessee which is based on the decisions referred to in the earlier part of this order has to be accepted. We therefore hold that imposition of penalty in the present case cannot be sustained and the same is directed to be cancelled.- Decided in favour of assessee. Issues Involved:1. Validity of the penalty notice under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961.2. Whether the penalty imposed under Section 271(1)(c) is maintainable based on the defective notice.Issue-wise Detailed Analysis:1. Validity of the penalty notice under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961:The appellant argued that the penalty notice issued by the Assessing Officer (AO) under Section 274 read with Section 271(1)(c) on 18-03-2014 was defective. The appellant relied on the decision of the Hon'ble Supreme Court in the case of SSA’s Emerald Meadows, which affirmed the Karnataka High Court's decision that a defective notice under Section 274 is not maintainable. The appellant contended that the notice did not specify the charge against the assessee, i.e., whether it was for concealment of income or furnishing inaccurate particulars of income.The respondent, represented by the Departmental Representative (DR), argued in favor of the validity of the notice and the penalty imposed. The DR cited various judgments, including those from the Calcutta High Court, Bombay High Court, and ITAT Mumbai, which supported the view that a mere defect in the notice does not invalidate the penalty proceedings. Specifically, the DR referenced the Calcutta High Court's judgment in Dr. Syamal Baran Mondal Vs. CIT, which stated that Section 271 does not mandate the recording of satisfaction in specific terms, and the satisfaction of the AO must reflect from the order either through expressed words or overt actions.2. Whether the penalty imposed under Section 271(1)(c) is maintainable based on the defective notice:The Tribunal considered the written submissions and case laws presented by both parties. It noted that the Coordinate Bench in the case of Jeetmal Choraria had elaborately discussed similar facts and preferred to follow the Karnataka High Court's decision in Manjunatha Cotton and Ginning Factory, which emphasized the requirement for a specific charge in the mandatory show cause notice under Section 274. The Tribunal reiterated that the issuance of a notice is an administrative device to inform the assessee about the proposal to levy penalty and to enable the assessee to explain why it should not be done. However, the notice must clearly specify the charge against the assessee.The Tribunal observed that the notice dated 18-03-2014 issued under Section 274 read with Section 271 of the Act did not specify the charge of the offence committed by the assessee, i.e., whether it was for concealing particulars of income or furnishing inaccurate particulars of income, rendering the notice defective.The Tribunal also noted that the Supreme Court had dismissed the Revenue's Special Leave Petition (SLP) against the Karnataka High Court's judgment in SSA’s Emerald Meadows, thereby upholding the principle that a defective notice under Section 274 cannot sustain the imposition of penalty.Conclusion:Respecting the judicial precedents and the Supreme Court's dismissal of the SLP, the Tribunal held that the penalty levied by the AO under Section 271(1)(c) of the Act and confirmed by the CIT(A) could not be sustained due to the defective notice. Consequently, the Tribunal canceled the penalty of Rs. 5,99,458/- and allowed the appeal of the assessee.Result:The appeal of the assessee was allowed, and the penalty imposed was canceled. The order was pronounced in the open court on 30.11.2018.