2020 (6) TMI 464 - AT - Income Tax

Defective notice leads to penalty deletion under Income-tax Act

Sikha Mittal Versus The ITO, Ward-3, Tinsukia

The Tribunal found the show cause notice issued by the Assessing Officer under the Income-tax Act to be defective and invalid as it did not specify the ... Penalty levied u/s. 271(1) ( c) r.w.s.274 - defective notice - AO had sent show cause notice for both the faults envisaged u/s 271(1) (c) of the Act i.e. for both (i) concealment of particulars of income (ii) and for furnishing of inaccurate particulars of income - HELD THAT:- AO has not stricken out the irrelevant portion of the fault/charge which would have spelt out the specific fault/charge against the assessee as per section 271(1) (c) of the Act. Since the proposed notice itself is defective, all subsequent proceedings are bad in law and the penalty imposed by the AO u/s. 271(1)(c) of the Act and confirmed by the Ld. CIT(A) should be cancelled. Notice proposing penalty should clearly spell out the fault/charge for which the assessee is put on notice, so that he can defend the charge properly. The issue of bad/vague penalty notice was adjudicated by the Hon’ble Karnataka High Court [though in a different context i.e notice issued u/s. 274 read with section 271(1)( c) in the case of CIT vs. SSA’s Emerald Meadows [2015 (11) TMI 1620 - KARNATAKA HIGH COURT] wherein the Hon’ble High Court following its own decision in the case of CIT vs Manjunatha Cotton and Ginning factory [2013 (7) TMI 620 - KARNATAKA HIGH COURT] has held that if the penalty notice is vague, then the penalty order is also bad in the eyes of law. - Appeal of assessee is allowed. Issues Involved:1. Validity of the show cause notice issued under section 274 read with section 271(1)(c) of the Income-tax Act, 1961.2. Imposition of penalty for concealment of particulars of income and furnishing of inaccurate particulars of income.Issue-Wise Detailed Analysis:1. Validity of the Show Cause Notice:The primary issue in this case revolves around the validity of the show cause notice issued by the Assessing Officer (AO) under section 274 read with section 271(1)(c) of the Income-tax Act, 1961. The AO issued a show cause notice for both 'concealment of particulars of income' and 'furnishing of inaccurate particulars of income' without specifying the exact charge. This ambiguity rendered the notice defective and invalid in the eyes of law. The Tribunal noted that the AO did not strike out the irrelevant portion of the fault/charge, which would have clarified the specific fault/charge against the assessee. Citing the Hon'ble Karnataka High Court's decision in CIT vs. SSA’s Emerald Meadows and the Hon'ble Supreme Court's dismissal of the Revenue's SLP against this decision, the Tribunal concluded that the show cause notice was invalid. Consequently, any penalty imposed based on such a defective notice is also invalid.2. Imposition of Penalty:The Tribunal further examined the imposition of penalty under section 271(1)(c) of the Act. Since the show cause notice itself was found to be defective, all subsequent proceedings, including the imposition of penalty by the AO and its confirmation by the CIT(A), were deemed bad in law. The Tribunal relied on several judicial precedents, including the Hon'ble Karnataka High Court's decision in CIT vs. Manjunatha Cotton and Ginning Factory, which held that a penalty imposed on a defective show cause notice without specifying the charge against the assessee cannot be sustained. The Tribunal also referred to the Hon'ble Bombay High Court's decision in CIT vs. Shri Samson Perinchery and the ITAT's decision in Suvaprasanna Bhattacharya vs. ACIT, which supported the same legal proposition.Opposition by the Departmental Representative (DR):The DR opposed the Tribunal's view by citing various case laws. However, the Tribunal noted that the cited cases, such as Dr. Syamal Baran Mondal vs. CIT and decisions of the Mumbai ITAT, were either not relevant to the specific context of the show cause notice or did not follow the ratio laid down by the Hon'ble Karnataka High Court. The Tribunal emphasized that where two views are available, the view favorable to the assessee should be followed, as established in CIT vs. Vegetable Products Ltd.Conclusion:Respecting the judicial precedents and the principle of natural justice, the Tribunal held that the imposition of penalty in the present case could not be sustained due to the defective show cause notice. Consequently, the penalty imposed by the AO and confirmed by the CIT(A) was deleted, and the appeal of the assessee was allowed.Result:The appeal of the assessee was allowed, and the penalty imposed was deleted. The order was pronounced in the open court on 10 June 2020.