2020 (3) TMI 965 - AT - Income Tax

Tribunal cancels penalty under Income-tax Act, stressing clarity in show cause notices.

Shri Mukesh Kumar Khaitan Versus Assistant Commissioner of Income-tax, Circle-23 (1), Hooghly

Shri Mukesh Kumar Khaitan Versus Assistant Commissioner of Income-tax, Circle-23 (1), Hooghly - TMI Issues:Appeal against penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 for AY 2012-13.Analysis:The appellant contested the penalty imposed by the Assessing Officer (AO) and confirmed by the Ld. CIT(A) under section 271(1)(c) of the Act. The Ld. CIT(A) upheld the penalty as the appellant failed to establish the source of cash amounting to Rs. 9,50,000, treating it as unexplained receipt. The appellant argued that the notice proposing the penalty was defective as it did not specify the fault or charge against the assessee clearly. Citing various legal precedents, the appellant contended that the penalty should be deleted due to the defective notice. The appellant referred to the decision of the Hon'ble Karnataka High Court and the Hon'ble Bombay High Court, emphasizing that penalties based on defective show cause notices are invalid. The appellant also highlighted a similar decision by the ITAT in another case.The Ld. DR opposed the appellant's submission and presented case laws to counter the appellant's arguments. The Ld. DR cited several decisions of the Mumbai ITAT and the Bombay High Court to support the contention that a notice need not be in a specific form and a mistake in the notice does not necessarily invalidate penalty proceedings. However, the Coordinate Bench of the Tribunal, in a previous case, discussed the relevance of these case laws and differentiated between the issue of recording satisfaction and the necessity of a specific charge in the show cause notice under section 274 of the Act.The Tribunal, following the precedent set by the Hon'ble Karnataka High Court, held that the imposition of penalty based on a defective show cause notice cannot be sustained. Referring to the earlier decision, the Tribunal ruled in favor of the appellant and deleted the penalty imposed under section 271(1)(c) of the Act. The Tribunal emphasized the importance of clarity in the show cause notice and the need for a specific charge against the assessee. Consequently, the appeal of the assessee was allowed, and the penalty was canceled.In conclusion, the Tribunal's decision highlighted the significance of a clear and specific charge in the show cause notice for imposing penalties under section 271(1)(c) of the Income-tax Act, 1961. The ruling emphasized the legal precedent set by the Hon'ble Karnataka High Court and reiterated that penalties based on defective notices are not sustainable. The Tribunal's decision in this case aligned with the principles of natural justice and the requirement for procedural clarity in penalty proceedings.