2019 (7) TMI 1150 - AT - Income Tax

Tribunal cancels penalty under Section 271(1)(c) for insufficient charge notice.

Shri Rajan R Srinivasan Versus Asst. Commissioner of Incomet-ax, Circle 1 (2) (1), Bengaluru.

The Tribunal allowed the assessee's appeal, canceling the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961 for failing to specify the ... Penalty u/s 271(1)(c) - defective notice - HELD THAT:- Evidently the show cause notice u/s. 271(1)(c) of the Act dated 31.12.2008 is defective as it does not spell out the grounds on which the penalty is sought to be imposed. The Hon’ble Karnataka High Court in the case of CIT vs. SSA's Emerald Meadows [2013 (7) TMI 620 - KARNATAKA HIGH COURT] wherein following its own decision in the case of CIT vs Manjunatha Cotton and Ginning factory [2013 (7) TMI 620 - KARNATAKA HIGH COURT] took a view that imposing of penalty u/s 271(1)(c) of the Act is bad in law and invalid for the reason that the show cause notice u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. The Id. Counsel further brought to our notice that as against the decision of the Hon’ble Karnataka High Court the revenue preferred an appeal in SLP [2016 (8) TMI 1145 - SC ORDER] dismissed the SLP preferred by the department. As already observed that the showcause notices issued in the case on hand under section 274 read with Section 271(1)(c) dated 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 under section 271(1)(c) 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. - Decided in favour of assessee. Issues Involved:1. Validity of the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961.2. Adequacy of the show-cause notice under Section 274 of the Act.Detailed Analysis:1. Validity of the Penalty Imposed Under Section 271(1)(c) of the Income-tax Act, 1961:The assessee, an individual deriving income from salary and business, claimed certain expenditures amounting to Rs. 8,57,872/- as business expenses. The Assessing Officer (AO) disallowed these expenses, deeming them personal and unrelated to the business. Consequently, the AO initiated penalty proceedings under Section 271(1)(c) of the Act for 'concealing particulars of income' and 'furnishing inaccurate particulars of income.' The CIT(Appeals) upheld the AO's decision, leading to the present appeal by the assessee before the Tribunal.2. Adequacy of the Show-Cause Notice Under Section 274 of the Act:The assessee argued that the show-cause notice issued under Section 274 did not specify the exact charge, i.e., whether the penalty was for 'furnishing inaccurate particulars of income' or 'concealing particulars of income.' The assessee relied on the Karnataka High Court's decision in CIT vs. Manjunatha Cotton & Ginning Factory (359 ITR 165), which held that a show-cause notice must clearly state the specific charge. The Tribunal noted that the AO had not struck down the irrelevant portion in the notice, making it defective.The Department's Representative (DR) cited several cases, including the ITAT Bangalore Bench's decision in Shri P.M. Abdulla Vs. ITO, which held that the absence of a specific mention in the show-cause notice was not fatal to the penalty. However, the Tribunal found that these cases were either in different contexts or contrary to the Karnataka High Court's ruling in Manjunatha Cotton & Ginning Factory.The Karnataka High Court in Manjunatha Cotton & Ginning Factory laid down principles for imposing penalties under Section 271(1)(c), emphasizing that the notice must clearly state the grounds for the penalty. The Court held that initiating penalty proceedings on one ground and imposing the penalty on another is invalid. The Tribunal found that the show-cause notice in the present case was defective as it did not specify the charge, thus violating the principles of natural justice.The Tribunal also referenced the Karnataka High Court's decision in CIT vs. SSA's Emerald Meadows, which invalidated penalties due to defective show-cause notices. The Supreme Court dismissed the Department's appeal against this decision, reinforcing the requirement for specific charges in the notice.Conclusion:The Tribunal concluded that the show-cause notice issued to the assessee was defective as it did not specify whether the penalty was for 'concealing particulars of income' or 'furnishing inaccurate particulars of income.' Consequently, the imposition of the penalty could not be sustained. The Tribunal allowed the assessee's appeal, directing the cancellation of the penalty.Order Pronounced:The appeal for the Assessment Year 2006-07 was allowed, and the penalty was directed to be canceled. The order was pronounced in the open court on 17th July 2019.