2019 (2) TMI 1137 - AT - Income Tax

Penalty Cancelled due to Defective Notice: Assessee's Appeal Partly Allowed

M/s. Ray And Ray Versus Deputy Commissioner of Income-tax, Circle-22, Kolkata.

The Tribunal held that the imposition of penalty under Section 271(1)(c) could not be sustained due to the defective show cause notice that did not ... Penalty u/s. 271(1)(c) - specific charge against the assessee namely as to whether the assessee was guilty of having concealed particulars of income or having furnished inaccurate particulars of income - HELD THAT:- We find that there was no specific charge against the assessee in the notice. Revenue has missed out their opportunity to subject the assessee to the penalty proceeding by not issuing a proper notice. No specific case has been made out by the Revenue as to why the matter should be remanded except that the assessee had not participated properly in the assessment proceedings but for that reason best judgment assessment has been made and the income, which had escaped assessment has been added to the income of the assessee. As incumbent upon the Revenue to make out a specific case for imposition of penalty, on which count the Revenue has failed. - SEE PRINCIPAL COMMISSIONER OF INCOME TAX-19, KOLKATA VERSUS DR. MURARI MOHAN KOLEY [2018 (9) TMI 1 - CALCUTTA HIGH COURT] - Decided in favour of assessee. Issues Involved:1. Validity of show cause notice under Section 274 read with Section 271(1)(c) of the Income-tax Act, 1961.2. Imposition of penalty under Section 271(1)(c) for concealment of income or furnishing inaccurate particulars.Issue-wise Detailed Analysis:1. Validity of Show Cause Notice under Section 274 read with Section 271(1)(c):The primary issue raised by the assessee is the validity of the show cause notice issued under Section 274 read with Section 271(1)(c) of the Income-tax Act, 1961. The assessee argued that the notice did not specify the specific charge against them, i.e., whether it was for concealment of income or furnishing inaccurate particulars of income. The notice used a standard proforma without striking out the irrelevant portions, leading to ambiguity regarding the exact charge.The assessee referred to several judicial decisions supporting their argument. The Hon’ble Karnataka High Court in the case of CIT vs. SSA’s Emerald Meadows and CIT vs. Manjunatha Cotton and Ginning Factory held that a penalty notice under Section 274 that does not specify the charge is invalid. This view was upheld by the Hon’ble Supreme Court when it dismissed the SLP filed by the department against the Karnataka High Court's decision. Additionally, the Hon’ble Bombay High Court in CIT vs. Shri Samson Perinchery and the Hon’ble Calcutta High Court in Pr. CIT-19 Vs. Dr. Murari Mohan Koley also supported this view, invalidating penalty notices that did not specify the charge.2. Imposition of Penalty under Section 271(1)(c):The Revenue, represented by the Ld. DR, opposed the assessee's submissions, citing various case laws. The Revenue relied on decisions like Dr. Syamal Baran Mondal Vs. CIT, where it was held that the recording of satisfaction about concealment of income need not be in specific terms and words. However, the Tribunal distinguished these cases, noting that they dealt with the recording of satisfaction rather than the specific charge in the show cause notice.The Tribunal discussed the decisions of different High Courts and ITAT Benches, noting the conflicting views. The Hon’ble Bombay High Court in CIT Vs. Kaushalya and other cases held that a mere mistake in the language of the notice or non-striking of the inaccurate portion does not invalidate the notice, provided the assessee is aware of the charges and given an opportunity to be heard. Conversely, the Hon’ble Karnataka High Court in Manjunatha Cotton & Ginning Factory emphasized the necessity of a clear and specific charge in the notice.The Tribunal preferred the view favorable to the assessee, following the principle that where two views are available, the one favorable to the assessee should be adopted. Consequently, the Tribunal held that the penalty notice in the present case, which did not specify the charge, was invalid.Conclusion:The Tribunal concluded that the imposition of penalty under Section 271(1)(c) could not be sustained due to the defective show cause notice. The penalty imposed by the AO and confirmed by the Ld. CIT(A) was directed to be canceled. The appeal of the assessee was partly allowed, with the specific ground of appeal regarding the penalty being upheld.Order Pronouncement:The order was pronounced in the open court on 15th February, 2019.