2019 (8) TMI 545 - AT - Income Tax

Defective Notice Leads to Penalty Cancellation

The Tribunal invalidated penalty proceedings under section 271(1)(c) of the Income Tax Act due to a defective show-cause notice under section 274 that ... Penalty u/s 271(1)(c) - defective notice - absence of any specific mention in the show-cause notice issued under section 274 of the Act as to whether the asseessee is guilty of having “furnished inaccurate particulars of income” or of having “concealed particulars of such income” - HELD THAT:- Notice issued under section 271(1)(c) without specifying which of the two contraventions, the assessee is guilty of was defective and the penalty imposed in pursuance of such defective notice was not sustainable. See THE COMMISSIONER OF INCOME TAX & OTHS. VERSUS M/S MANJUNATHA COTTON AND GINNING FACTORY & OTHS., M/S. V.S. LAD & SONS, [2013 (7) TMI 620 - KARNATAKA HIGH COURT] - we cancel the penalty imposed upon the assessee under section 271(1)(c) and allow the appeal of the assessee. Issues Involved:1. Validity of initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961.2. Adequacy of the show-cause notice under section 274 of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Validity of initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961:The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-4, Kolkata, which confirmed the penalty of Rs. 1,23,380/- imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961. The assessee, an individual engaged in the business of trading in Rice Bran, filed a return of income for the year under consideration declaring a total income of Rs. 4,63,625/-. Following a search and seizure action under section 132, a notice under section 153A was issued, and the assessee subsequently filed a return declaring a total income of Rs. 8,62,911/-. The Assessing Officer accepted this income but initiated penalty proceedings under section 271(1)(c) for the difference in declared income. The penalty was imposed as the explanation provided by the assessee was not found acceptable. The CIT(Appeals) confirmed this penalty, leading to the current appeal before the Tribunal.2. Adequacy of the show-cause notice under section 274 of the Income Tax Act, 1961:The assessee's counsel raised a preliminary issue challenging the initiation of penalty proceedings on the grounds that the show-cause notice under section 274 did not specify whether the penalty was for 'furnishing inaccurate particulars of income' or 'concealing particulars of such income.' The Tribunal noted that the irrelevant portion of the notice was not struck off, making it unclear which contravention the assessee was being penalized for. This issue was previously considered by the Tribunal in the case of Suvaprasanna Bhattacharya vs. ACIT, where a similar penalty order was deemed invalid based on the decision of the Hon'ble Karnataka High Court in CIT & Another vs. Manjunatha Cotton & Ginning Factory, which stipulated that the notice must clearly state the grounds for penalty to meet the requirements of natural justice.The Tribunal cited the principles laid down by the Karnataka High Court, emphasizing that the notice under section 274 should specifically state whether the penalty is for concealment of income or furnishing inaccurate particulars. The practice of issuing a standard form without specifying the grounds was deemed insufficient and a violation of natural justice. The Tribunal also referenced the Hon'ble Calcutta High Court's decision in Principal CIT vs. Bijoy Kr. Agarwal, which upheld the cancellation of penalty imposed under a defective notice.Conclusion:The Tribunal concluded that the initiation of penalty proceedings under section 271(1)(c) was invalid due to the defective show-cause notice under section 274, which failed to specify the grounds for penalty. Following the judicial precedents, including those from the Hon'ble Karnataka High Court and the Hon'ble Calcutta High Court, the Tribunal canceled the penalty imposed on the assessee and allowed the appeal.Order:The appeal of the assessee was allowed, and the penalty imposed under section 271(1)(c) was canceled. The order was pronounced in the open Court on August 09, 2019.