Penalty Cancelled: Defective Notice Invalidates Proceedings

The Tribunal allowed the appeal, canceling the penalty of Rs. 51,300/- imposed under Section 271(1)(c) as the notice issued did not specify the charge against the assessee. Relying on the principle favoring the assessee in case of conflicting judgments, the Tribunal set aside the penalty for the assessment year 2013-14. The order was pronounced on 26.04.2019, endorsing that a defective notice invalidates penalty proceedings.

---

---

Issues Involved:
1. Validity of the notice issued 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 when the notice does not specify the specific charge against the assessee.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 274 read with Section 271(1)(c):

The appellant argued that the notice dated 16/03/2016 issued by the Assessing Officer (AO) under Section 274 read with Section 271(1)(c) of the Income Tax Act was defective as it did not mention the specific charge against the assessee. The appellant relied on the decision of the Hon’ble Supreme Court in the case of SSA’s Emerald Meadows to support this contention. The appellant maintained that the imposition of penalty based on a defective notice is not maintainable in the eye of law.

On the other hand, the Department's Representative (DR) contended that the issue of whether the non-marking of the specific charge in the notice under Section 274 constitutes grounds for rejection of satisfaction and levy of penalty under Section 271(1)(c) has been addressed in various judgments. The DR cited several cases, including the Hon’ble Calcutta High Court in Dr. Syamal Baran Mondal Vs. CIT, the Hon’ble Bombay High Court in CIT Vs. Smt. Kaushalya, and the Hon’ble Madras High Court in Sundaram Finance Ltd. Vs. ACIT, to argue that the mere non-striking off of the specific charge does not invalidate the notice.

2. Maintainability of Penalty Imposed Under Section 271(1)(c):

The Tribunal considered the rival submissions and the written submissions filed by the DR. It noted that the same set of written submissions were filed before the Coordinate Bench of the Tribunal in the case of Jeetmal Choraria, wherein the Coordinate Bench preferred to follow the ratio laid down by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory. The principle established by the Hon’ble Supreme Court in the case of Vegetable Products Ltd., which states that when there are two views on an issue, the view favoring the assessee should be adopted, was also considered.

The Tribunal observed that the notice issued under Section 274 read with Section 271 of the Act did not specify the charge against the assessee, i.e., whether it was for concealing particulars of income or furnishing inaccurate particulars of income. This defect in the notice was held to be significant.

The Tribunal also noted that the Hon’ble Supreme Court had dismissed the Special Leave Petition (SLP) of the Revenue in the case of SSA’s Emerald Meadows, thereby endorsing the view that a defective notice invalidates the penalty proceedings. Additionally, the Hon’ble Jurisdictional High Court in the case of PCIT vs. Dr. Murari Mohan Koley endorsed the same view.

Given the conflicting judgments of the Hon’ble Supreme Court on the issue, the Tribunal relied on the principle that the view favoring the assessee should be adopted. Consequently, the Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and canceled the penalty of Rs. 51,300/- levied by the AO under Section 271(1)(c) of the Act for the assessment year 2013-14.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the imposition of penalty under Section 271(1)(c) based on a defective notice that did not specify the charge was not maintainable. The penalty was thereby canceled, and the grounds raised by the assessee were accepted. The order was pronounced in the Court on 26.04.2019.

---