2019 (5) TMI 625 - AT - Income Tax

Appeal allowed due to defective notice. Penalty of Rs. 93,060 canceled under Section 271(1)(c). Decision on 6th May, 2019.

The Tribunal allowed the appeal of the assessee, holding that the penalty imposed under Section 271(1)(c) was unsustainable due to a defective show cause ... Penalty levied u/s. 271(1)(c) - Defective notice - non strike out the inappropriate words - undisclosed gain of LTCG - Suppressed income as well as undisclosed portion of income - HELD THAT:- Show cause notice issued in the present case u/s 274 of the Act 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 of the Act does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained .See JEETMAL CHORARIA VERSUS A.C.I.T., CIRCLE-43, [2017 (12) TMI 883 - ITAT, KOLKATA] - 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 to the case.Detailed Analysis:1. Validity of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:The core issue in this appeal is the validity of the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961. The penalty was initially imposed by the Assessing Officer (AO) and subsequently confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The penalty was levied on the grounds of undisclosed Long Term Capital Gains (LTCG), which the AO considered as suppressed income. The penalty amounting to Rs. 93,060 was imposed, representing 100% of the tax sought to be evaded.2. Specificity of the Charge in the Show Cause Notice under Section 274 read with Section 271 of the Act:The appellant argued that the show cause notice issued under Section 274 read with Section 271 was defective as it did not specify the exact charge against the assessee. The notice failed to strike out the irrelevant portions, leaving ambiguity as to whether the penalty was for 'concealment of particulars of income' or 'furnishing inaccurate particulars of income.' This lack of specificity was highlighted as a significant flaw, rendering the notice invalid.The appellant cited the decision of the Karnataka High Court in CIT vs. SSA’s Emerald Meadows, which held that a penalty under Section 271(1)(c) is invalid if the show cause notice does not specify the charge. This decision was upheld by the Supreme Court, further reinforcing the appellant's argument. Additional references were made to similar judgments by the Bombay High Court and the ITAT Kolkata, which supported the necessity for a clear and specific charge in the show cause notice.3. Judicial Precedents and Their Applicability to the Case:The Department's Representative (DR) opposed the appellant's arguments by citing various case laws. However, the Tribunal noted that the cases cited by the DR, including decisions from the Bombay High Court and ITAT Mumbai, did not specifically address the issue of a defective show cause notice under Section 274.The Tribunal referred to the decision in Jeetmal Choraria Vs. ACIT, which elaborated on the necessity for a specific charge in the show cause notice. The Tribunal distinguished between the satisfaction of the AO regarding concealment and the requirement for a specific charge in the notice. It was clarified that the decision in Dr. Syamal Baran Mondal Vs. CIT dealt with the recording of satisfaction, not the specificity of the charge in the notice.The Tribunal also reviewed decisions from the ITAT Mumbai, which followed the Bombay High Court's stance that a mistake in the notice language or non-striking of the inaccurate portion does not invalidate the notice. However, the Tribunal preferred to follow the Karnataka High Court's decision, which was more favorable to the assessee.Conclusion:The Tribunal concluded that the imposition of penalty was unsustainable due to the defective show cause notice, which did not specify whether the charge was for concealment of income or furnishing inaccurate particulars of income. The Tribunal emphasized that where two views exist, the one favorable to the assessee should be followed. Consequently, the penalty imposed and confirmed by the CIT(A) was deleted, and the appeal of the assessee was allowed.Final Judgment:The Tribunal allowed the appeal of the assessee, holding that the imposition of penalty under Section 271(1)(c) could not be sustained due to the defective show cause notice. The penalty was directed to be canceled, and the order was pronounced in the open court on 6th May, 2019.