2019 (4) TMI 1613 - AT - Income Tax

Defective notice leads to cancellation of penalty under Income-tax Act section 271(1)(c)

Ananda Educational Development And Charitable Organisation Versus Income-tax Officer, Wd-35 (2), Kolkata

The Tribunal held that the penalty imposed under Section 271(1)(c) of the Income-tax Act could not be upheld due to the defective show cause notice that ... Penalty u/s. 271(1)(c) - penalty does not contain the specific charge against the assessee namely as to whether the assessee was being proceeded against for having concealed particulars of income or having furnished inaccurate particulars of income - non specification of charge - defective notice - Held that:- Notice issued by the AO under Section 274 read with Section 271(l)(c) to be bad in law as it did not specify which limb of Section 271(l)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of COMMISSIONER OF INCOME TAX -VS- MANJUNATHA COTTON AND GINNING FACTORY [2013 (7) TMI 620 - KARNATAKA HIGH COURT] . Also see M/S SSA’S EMERALD MEADOWS [2015 (11) TMI 1620 - KARNATAKA HIGH COURT] - Decided in favour of assessee. Issues Involved:1. Validity of penalty under Section 271(1)(c) of the Income-tax Act, 1961.2. Specificity of the charge in the show cause notice under Section 274 read with Section 271 of the Act.3. Judicial precedents and their applicability.Detailed Analysis:1. Validity of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:The primary issue in the appeals was the imposition of penalty under Section 271(1)(c) of the Income-tax Act, 1961. The Assessing Officer (AO) had determined a total income of Rs. 30,10,000 against the assessee’s nil returned income, considering this amount as suppressed and undisclosed income. Consequently, the AO initiated penalty proceedings under Section 271(1)(c) on 10.02.2016 and imposed a penalty of Rs. 30,10,000. The CIT(A) upheld this penalty, leading the assessee to appeal before the Tribunal.2. Specificity of the Charge in the Show Cause Notice under Section 274 read with Section 271 of the Act:The assessee’s counsel argued that the show cause notices issued under Section 274 read with Section 271 of the Act were defective as they did not specify whether the penalty was for 'concealment of particulars of income' or 'furnishing inaccurate particulars of income.' The Tribunal noted that the AO had not struck out the irrelevant portion in the show cause notice, making it ambiguous. The notice stated, “you have concealed the particulars or furnished inaccurate particulars of such income,” without specifying the exact charge.3. Judicial Precedents and Their Applicability:The Tribunal examined several judicial precedents to address the issue. The assessee’s counsel cited the decision of the Hon’ble Karnataka High Court in CIT vs. SSA’s Emerald Meadows, which held that a penalty notice must specify the charge clearly, and the Hon’ble Supreme Court dismissed the revenue’s appeal against this decision. The Tribunal also referred to the Hon’ble Bombay High Court’s decision in CIT vs. Shri Samson Perinchery, which supported the requirement for a specific charge in the penalty notice.The Departmental Representative (DR) opposed these submissions, citing various case laws, including the Hon’ble Calcutta High Court’s decision in Dr. Syamal Baran Mondal vs. CIT, which suggested that the satisfaction of the AO must reflect from the order and not necessarily in specific terms. However, the Tribunal found that these cases did not directly address the issue of specificity in the show cause notice.The Tribunal also reviewed the decision of the Coordinate Bench in Jeetmal Choraria vs. ACIT, which discussed similar issues and concluded that a vague notice without a specific charge is invalid. The Tribunal observed that the Hon’ble Karnataka High Court’s decision in CIT vs. Manjunatha Cotton and Ginning Factory was directly applicable and preferred this view over the contrary decisions from other jurisdictions, following the legal principle that where two views exist, the one favorable to the assessee should be adopted.Conclusion:The Tribunal concluded that the penalty imposed under Section 271(1)(c) could not be sustained due to the defective show cause notice, which failed to specify the charge against the assessee. Consequently, the penalty was directed to be canceled, and the appeals of the assessee were allowed. The order was pronounced in the open court on 24.04.2019.