Appeal allowed due to defective notice, penalty cancelled under Income-tax Act.

The Tribunal allowed the appeal of the assessee, ruling that the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961 was invalid due to the defective show cause notice that did not specify the charge against the assessee. The Tribunal held that the penalty could not be sustained and directed its cancellation, following precedents emphasizing the necessity of a specific charge in the show cause notice. The penalty was deleted, and the decision was pronounced on 8th May 2019.

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Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the Income-tax Act, 1961.
2. Validity of the show cause notice under Section 274 read with Section 271 of the Act.

Issue-Wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:
The appeal was filed by the assessee challenging the order of the Commissioner of Income Tax (Appeals)-1, Jodhpur, which confirmed the penalty levied under Section 271(1)(c) of the Income-tax Act, 1961. The penalty was imposed by the Assessing Officer (AO) after an assessment under Section 144 of the Act was made, determining a total income of Rs. 3,69,48,290/- against the assessee’s returned income of Rs. 1,350/-. The AO added Rs. 3,69,46,939/- on account of unexplained/unsecured loans, unexplained new capital, and disallowance on account of personal use. Considering this as suppressed and undisclosed income, the AO initiated penalty proceedings under Section 271(1)(c) by issuing a notice under Section 274 read with Section 271 of the Act. The AO imposed a penalty of Rs. 2,71,479/- as 100% of the tax sought to be evaded. The CIT(A) confirmed the AO's action, leading to the present appeal.

2. Validity of the Show Cause Notice under Section 274 read with Section 271 of the Act:
The primary contention of the assessee was that the show cause 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 concealment of particulars of income or furnishing inaccurate particulars of income. The notice failed to strike out the irrelevant portion, making it ambiguous. The assessee relied on the decision of the Hon’ble Karnataka High Court in CIT vs. SSA’s Emerald Meadows, where it was held that such a defective notice renders the penalty proceedings invalid. This view was upheld by the Hon’ble Supreme Court when the revenue's appeal was dismissed. The assessee also cited similar judgments from the Hon’ble Bombay High Court and the ITAT Kolkata.

The Departmental Representative (DR) opposed the assessee's submission, citing various case laws, including decisions from the Hon’ble Calcutta High Court and ITAT Mumbai, which suggested that specific recording of satisfaction about concealment of income is not mandated in specific terms and words. However, the Tribunal observed that these cases were distinguishable and not directly applicable to the issue of specific charges in the mandatory show cause notice under Section 274 of the Act.

The Tribunal noted that the line of reasoning of the Hon’ble Bombay High Court and the Hon’ble Patna High Court is that the issuance of notice is an administrative device to inform the assessee about the proposal to levy penalty, and mere mistakes in the language or non-striking of the inaccurate portion do not invalidate the notice. However, the Tribunal preferred to follow the view of the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, which emphasized the necessity of a specific charge in the show cause notice.

Conclusion:
The Tribunal concluded that the show cause notice issued in the present case under Section 274 of the Act did not specify the charge against the assessee, as it failed to strike out the inappropriate words. Consequently, the imposition of penalty could not be sustained. Respectfully following the decision of the coordinate bench of the Tribunal (Kolkata) and the Hon’ble Karnataka High Court, the Tribunal held that the penalty imposed and confirmed by the CIT(A) in the present case was invalid and directed its cancellation. The appeal of the assessee was allowed.

Order:
The appeal of the assessee was allowed, and the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961, was deleted. The order was pronounced in the open court on 8th May 2019.

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