2021 (12) TMI 24 - HC - Income Tax

Court upholds cancellation of penalty under Income Tax Act due to defective notices.

PRINCIPAL CIT, CENTRAL – 2, KOLKATA Versus BRIJENDRA KUMAR PODDAR

The High Court upheld the Tribunal's decision to cancel the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, due to defective notices ... Revision u/s 271(1)(c) - Defective notice u/s 274 - HELD THAT:- Tribunal is in full consonance with the law laid down by the various High Court as well as Hon’ble Supreme Court on the subject issue. The learned Senior Counsel appearing for the respondent has placed before us the decision of this case in the case of Principal Commissioner of Income Tax – 19 Kolkata Vs.Dr. Murari Mohan Koley [2018 (9) TMI 1 - CALCUTTA HIGH COURT] taking note of the various decisions including the decision in the case of Manjunatha Cotton [2013 (7) TMI 620 - KARNATAKA HIGH COURT] which was affirmed by the Hon’ble Supreme Court as the appeal filed by the revenue was dismissed by the Hon’ble Supreme Court. The Supreme Court has also taken note of the decision of AMSON PERINCHERY [2017 (1) TMI 1292 - BOMBAY HIGH COURT] and ultimately held that the show cause notice issued under Section 274 of the Act does not specify the charge against the assessee as to whether it is concealing particulars of income or furnishing inaccurate particulars of income and, therefore, the show cause notice was defective. The decision of this Court in the case of Dr. Murari Mohan Koley (supra) will apply with full force. Thus we are of the considered view that the order passed by the Tribunal does not call for any interference. Accordingly, appeal fails and the substantial questions are answered against the revenue. Issues:1. Whether the Tribunal was justified in canceling the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961Rs.2. Whether the notices under Section 274 of the Income Tax Act, 1961 were in accordance with the lawRs.3. Whether the imposition of penalty is a civil consequence irrespective of deliberate or indeliberate concealment of incomeRs.4. Whether Section 271 of the Income Tax Act, 1961 mandates clear terms of satisfaction by the assessing officer about the concealment of income or furnishing inaccurate particulars by the assesseeRs.Analysis:Issue 1:The appeal was filed by the Revenue challenging the order of the Income Tax Appellate Tribunal canceling the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961. The Tribunal found that the notices issued under Section 274 were defective as they did not specify the charges against the assessee clearly. The Tribunal cited various decisions, including the case of CIT Vs. Manjunatha Cotton, to support its decision. It emphasized that the assessee must be aware of the charges against them to defend accordingly. The Tribunal's decision was in line with established legal principles, and the High Court upheld the Tribunal's decision, stating that the order did not require any interference.Issue 2:The Tribunal also examined whether the notices under Section 274 of the Income Tax Act, 1961 were in accordance with the law. It held that if the notice issued by the Assessing Officer did not specify the charges clearly and was issued in a standard format without striking out irrelevant portions, it would be considered vague. Citing precedents from various High Courts and the Supreme Court, the Tribunal concluded that such vague notices could not support the imposition of penalties under Section 271(1)(c). The High Court agreed with this reasoning and upheld the Tribunal's decision.Issue 3:The issue of whether the imposition of penalty is a civil consequence irrespective of deliberate or indeliberate concealment of income was also considered. The Tribunal and the High Court emphasized the importance of clearly specifying the charges against the assessee in the notice under Section 274. They held that penalties could not be imposed based on vague notices that did not inform the assessee of the exact allegations against them. The decisions of various High Courts and the Supreme Court were cited to support this interpretation.Issue 4:Regarding whether Section 271 of the Income Tax Act, 1961 mandates clear terms of satisfaction by the assessing officer about the concealment of income or furnishing inaccurate particulars by the assessee, the Tribunal and the High Court reiterated the necessity for clear and specific notices under Section 274. They emphasized that the assessee must be informed of the exact charges to enable them to defend themselves adequately. The High Court found that the order passed by the Tribunal was in accordance with established legal principles and did not require any interference. Consequently, the appeal was dismissed, and the substantial questions were answered against the revenue.