2019 (10) TMI 1169 - AT - Income Tax

Penalty u/s. 271(1)(c) - non strike of inappropriate words - unexplained cash credit u/s.68 - 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. In these circumstances, we are of the view that imposition of penalty cannot be sustained. The plea of the ld. Counsel for the assessee which is based on the decisions referred to in the earlier part of this order has to be accepted. We therefore hold that imposition of penalty in the present cases cannot be sustained and the same is directed to be cancelled.

Summary

Issues Involved:
1. Validity of the penalty order under Section 271(1)(c) of the Income Tax Act, 1961.
2. Defectiveness of the show-cause notice under Section 274 of the Act.
3. Application of the Karnataka High Court's decision in the case of Manjunatha Cotton & Ginning Factory.

Detailed Analysis:

1. Validity of the penalty order under Section 271(1)(c) of the Income Tax Act, 1961:
The Assessee appealed against the CIT(A)'s order confirming the AO's imposition of penalty under Section 271(1)(c) for the assessment year 2008-09. The penalty was imposed due to undisclosed bank transactions amounting to ?17,48,674/-. The Assessee claimed these were sales from trading in iron and steel, but could not provide sufficient evidence. The CIT(A) reduced the addition to ?6,99,470/- but upheld the penalty.

2. Defectiveness of the show-cause notice under Section 274 of the Act:
The Tribunal examined the show-cause notice issued under Section 274 and found it defective. The notice did not specify whether the penalty was for "furnishing inaccurate particulars of income" or "concealing particulars of income." This ambiguity was crucial as it failed to inform the Assessee of the exact charge, thus violating principles of natural justice.

3. Application of the Karnataka High Court's decision in the case of Manjunatha Cotton & Ginning Factory:
The Tribunal relied heavily on the Karnataka High Court's decision in CIT Vs. Manjunatha Cotton & Ginning Factory, which mandates that a show-cause notice under Section 274 must clearly state the specific charge against the Assessee. The High Court ruled that a vague notice, which does not strike out irrelevant portions, cannot sustain a penalty. The Tribunal noted that similar principles were upheld in subsequent cases, including CIT vs. SSA’s Emerald Meadows, where the Supreme Court dismissed the department's appeal against the Karnataka High Court's decision.

Conclusion:
The Tribunal concluded that the penalty order could not be sustained due to the defective show-cause notice. The notice's failure to specify the exact charge rendered the penalty proceedings invalid. Consequently, the Tribunal allowed the Assessee's appeal and directed the cancellation of the penalty.

Pronouncement:
The appeal was allowed, and the decision was pronounced in the open court on October 23, 2019.