2019 (1) TMI 1003 - AT - Income Tax

Appeal allowed, penalty quashed due to procedural flaw violating natural justice

Mrs. Malti Gupta Versus The ITO, Ward III (4) Jalandhar

The Tribunal allowed the appeal, quashing the penalty of Rs. 1,10,521/- imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act. ... Levy of penalty u/s 271(1)(c) - non specify the limb of Sec. 271(1)(c) for which the penalty proceedings had been initiated - defective notice - non deletion of irrelevant default from notice - Held that:- Admittedly, on a perusal of the ‘SCN’, dated 31.12.2010, it stands revealed that the Assessing Officer had failed to strike off the irrelevant default while calling upon the assessee to explain as to why the penalty u/s 271 (1) (c) of the Act may not be imposed on her. As both of the two defaults envisaged in Sec. 271(1)(c) i.e ‘concealment of income’ and ‘furnishing of inaccurate particulars of income’ are separate and distinct defaults which operate in their independent and exclusive fields, therefore, it was obligatory on the part of the A.O to have clearly put the assessee to notice as regards the default for which she was called upon to explain as to why penalty under Sec. 271(1)(c) may not be imposed on her. As observed by us hereinabove, a perusal of the ‘Show cause’ notice issued in the present case by the A.O under Sec. 274 r.w. Sec. 271(1)(c), dated 31.12.2010 clearly reveals that there has been no application of mind on the part of the A.O while issuing the same. As penalty proceedings are in the nature of quasi criminal proceedings, therefore, the assessee as a matter of a statutory right is supposed to know the exact charge for which he is being called upon to explain that as to why the same may not be imposed. The non specifying of the charge in the ‘Show cause’ notice not only reflects the non application of mind by the A.O, but the same seriously defeats the very purpose of giving a reasonable opportunity of being heard to the assessee as envisaged under Sec. 274(1). Case of SA'S EMERALD MEADOWS [2016 (8) TMI 1145 - SUPREME COURT] to be followed - Decided in favour of assessee Issues Involved:1. Delay in filing the appeal.2. Legitimacy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.3. Validity of the Show Cause Notice (SCN) issued by the Assessing Officer (A.O).Detailed Analysis:1. Delay in Filing the Appeal:The appeal filed by the assessee involved a delay of 24 days. The assessee explained that the delay was due to the illness and subsequent demise of the partner of the chartered accountants handling the case. The Tribunal, considering these bona fide reasons, condoned the delay.2. Legitimacy of Penalty under Section 271(1)(c):The assessee filed a return for the assessment year 2008-09, which was later scrutinized, leading to additions and disallowances by the Assessing Officer. The CIT(A) partly upheld these additions. Consequently, the A.O. imposed a penalty of Rs. 1,10,521/- for furnishing inaccurate particulars of income. The CIT(A) partially deleted the penalty but upheld it concerning unexplained cash deposits of Rs. 3,10,000/-. The assessee contested this penalty before the Tribunal, arguing that the A.O. failed to specify the exact nature of the default in the SCN, making the penalty unsustainable.3. Validity of the Show Cause Notice (SCN):The Tribunal scrutinized the SCN dated 31.12.2010 and found that the A.O. did not strike off the irrelevant default, failing to specify whether the penalty was for 'concealment of income' or 'furnishing of inaccurate particulars of income.' This lack of clarity was deemed a non-application of mind by the A.O., violating the mandate of Section 274(1) of the Income Tax Act, which requires clear communication of the charge to the assessee.The Tribunal referenced several judicial pronouncements, including the Supreme Court's rulings in Dilip & Shroff Vs. Jt. CIT and T. Ashok Pai Vs. CIT, emphasizing that 'concealment of income' and 'furnishing inaccurate particulars of income' are distinct defaults. The failure to specify the charge in the SCN was seen as a serious procedural lapse, rendering the penalty order invalid.The Tribunal also cited the Karnataka High Court's decision in CIT Vs. SSA’s Emerald Meadows and the Bombay High Court's ruling in CIT Vs. Samson Perinchery, both supporting the view that an unspecified SCN is legally untenable.Conclusion:The Tribunal concluded that the A.O.'s failure to specify the charge in the SCN deprived the assessee of a fair opportunity to defend herself, violating principles of natural justice. Consequently, the penalty of Rs. 1,10,521/- imposed under Section 271(1)(c) was quashed. The Tribunal refrained from discussing the merits of the case, given the jurisdictional flaw in the penalty proceedings.Order:The appeal was allowed, and the penalty imposed by the A.O. was quashed. The order was pronounced in the open court on 17.01.2019.