2021 (1) TMI 206 - AT - Income Tax

Penalty under Income-tax Act cancelled due to defective notice

The Tribunal concluded that the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 was not sustainable due to a defective show cause ... Penalty u/s 271(1)(c) - defective notice - AO did not specify the fault/charge on which he proposed to levy penalty against the assessee - Without striking out one of the limbs, the assessee is called upon by the AO to defend both the faults/charges - 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. According to us, since the proposed show-cause notice itself is a 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. As decided in M/S SSA’S EMERALD MEADOWS [2015 (11) TMI 1620 - KARNATAKA HIGH COURT] 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. - Decided in favour of assessee. Issues:1. Validity of penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 due to defective show cause notice.Analysis:The appeal was filed against the penalty imposed by the Assessing Officer (AO) under section 271(1)(c) of the Income-tax Act, 1961. The issue arose from a defective show cause notice issued by the AO, which did not specify the fault or charge against the assessee. The notice failed to strike out either of the limbs of Section 271(1)(c), i.e., 'concealed the particular of income' or 'furnished inaccurate particulars of such income'. The Tribunal noted that without specifying the fault, the notice was bad in law, as both faults were discernible, making it impossible for the assessee to defend against the charges.The Tribunal relied on the decision of the Hon'ble Karnataka High Court in a similar case, emphasizing that a defective show cause notice renders subsequent proceedings invalid. The Tribunal also highlighted the dismissal by the Supreme Court of an appeal by the revenue in a related case. Additionally, the Tribunal cited decisions by the Hon'ble Bombay High Court and the ITAT that supported the view that penalty on a defective notice without specifying the charge cannot be sustained.The Departmental Representative (DR) vehemently opposed the Tribunal's suggestion, citing various case laws. However, the Tribunal found that the case laws cited by the DR had been adequately addressed by a Coordinate Bench in a previous case. The Tribunal differentiated between cases discussing the recording of satisfaction and those addressing the specific charge in the show cause notice.The Tribunal further discussed decisions from Mumbai ITAT and the Hon'ble Bombay High Court, emphasizing the administrative purpose of the notice to inform the assessee about the proposed penalty. The Tribunal noted the conflicting views between different High Courts and Tribunals but ultimately followed the view expressed by the Hon'ble Karnataka High Court in a specific case.Based on the above analysis and precedent, the Tribunal concluded that the imposition of the penalty in the present case was not sustainable due to the defective show cause notice. Consequently, the penalty imposed by the AO was cancelled, and the appeal of the assessee was allowed.In summary, the judgment revolved around the validity of the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961, due to a defective show cause notice that failed to specify the charge against the assessee. The Tribunal relied on various legal precedents, including decisions by different High Courts and Tribunals, to support its conclusion that the penalty could not be sustained. Ultimately, the Tribunal cancelled the penalty and allowed the appeal of the assessee.