2019 (9) TMI 1001 - AT - Income Tax

Defective Notice Invalidates Penalty: Assessee's Appeal Succeeds

Shri Lakshman Ravi Versus The Assistant Commissioner of Income Tax, Circle 3 (2) (1) [previously 10 (1) ], Bangalore.

The Tribunal found the show cause notice issued to the Assessee defective for not specifying the charge clearly, violating principles of natural justice. ... Penalty u/s. 271(1)(c) - Defective notice - non specification of charge against the assessee - whether it is for concealment of particulars of income or furnishing of inaccurate particulars 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. We are of the view that imposition of penalty cannot be sustained. The plea of the assessee which is based on the decisions referred to in the earlier part of this order has to be accepted. See M/S MANJUNATHA COTTON AND GINNING FACTORY & OTHS., M/S. V.S. LAD & SONS, [2013 (7) TMI 620 - KARNATAKA HIGH COURT]. We therefore hold that imposition of penalty in the present cases cannot be sustained and the same is directed to be cancelled. In view of the above conclusion, we refrain ourselves from dealing with the other arguments on merits put forth by the Assessee. - Decided in favour of assessee. Issues Involved:1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.2. Validity of the show cause notice issued under Section 274 of the Income Tax Act, 1961.Detailed Analysis:1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:The Assessee filed a return of income for the assessment year (AY) 2011-12 declaring a total income of Rs. 3,90,80,940/-. The Assessing Officer (AO) made certain additions to the declared income, which included:- Disallowance of Rs. 39,00,000/- as litigation expenses.- Disallowance of Rs. 9,46,000/- under Section 40(a)(ia) due to non-deduction of tax at source on interest expense.- Disallowance of Rs. 55,00,000/- under Section 40(a)(ia) due to non-deduction of tax at source under Section 194-C.Subsequently, the AO initiated penalty proceedings under Section 271(1)(c) of the Act but failed to specify whether the penalty was for 'concealing particulars of income' or 'furnishing inaccurate particulars of income.' The penalty was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)], leading to the Assessee's appeal before the Tribunal.2. Validity of the Show Cause Notice Issued under Section 274 of the Income Tax Act, 1961:The Assessee's counsel argued that the show cause notice issued under Section 274 was defective as it did not specify the exact charge against the Assessee. The notice failed to strike out the irrelevant portion, making it unclear whether the penalty was for 'furnishing inaccurate particulars of income' or 'concealing particulars of income.' The counsel cited the decision of the Karnataka High Court in CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 218 Taxman 423 (Kar.), which held that such ambiguity in the show cause notice invalidates the imposition of penalty.Tribunal's Findings:The Tribunal reviewed the show cause notice and observed that the AO had not struck off the irrelevant portion, thus failing to specify the charge against the Assessee. The Tribunal referred to the principles laid down by the Karnataka High Court in the Manjunatha Cotton & Ginning Factory case, which emphasized that:- The notice under Section 274 should clearly state whether the penalty is for concealment of income or furnishing inaccurate particulars.- A vague notice offends the principles of natural justice.- Penalty proceedings initiated on one ground and concluded on another are invalid.The Tribunal also noted that the Karnataka High Court's decision in CIT vs. SSA’s Emerald Meadows, which was upheld by the Supreme Court, confirmed that a defective show cause notice under Section 274 invalidates the penalty.Conclusion:The Tribunal concluded that the show cause notice issued to the Assessee was defective as it did not specify the charge, thereby violating the principles of natural justice. Consequently, the imposition of penalty under Section 271(1)(c) could not be sustained. The Tribunal allowed the Assessee's appeal and directed the cancellation of the penalty.Final Judgment:The appeal was allowed, and the penalty imposed on the Assessee was canceled. The judgment was pronounced in the open court on September 20, 2019.