2017 (4) TMI 1393 - AT - Income Tax

Penalty u/s.271(1)(c) - non specification of charge - Held that - Since the penalty notice issued to the assessee dated 11.01.2013 did not spell out as to which default the assessee has committed for which penalty u/s. 271(1)(c) of the Act has been initiated, therefore, following the Hon ble Karnataka High Court s order in Manjunatha Cotton & Ginning Factory (2013 (7) TMI 620 - KARNATAKA HIGH COURT) and SSA s Emerald Meadows (2016 (8) TMI 1145 - SUPREME COURT), we confirm the order of ld. CIT(A) in allowing the appeal of the assessee. - Decided in favour of assessee.

Summary

Issues:
Validity of penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 based on show cause notices lacking specific charges.

Analysis:
In this case, the Assessee, a partnership firm engaged in the tea business, challenged the validity of penalties imposed by the CIT(A) under section 271(1)(c) of the Income Tax Act, 1961. The penalties were imposed due to the inclusion of profits from manufacturing and selling tea made from green leaves purchased from the market in the total income, which was considered by the AO as business income not subject to Rule 8(1) of the Income Tax Rules. The issue revolved around whether the penalties were justified given the nature of the income in question.

The Assessee argued that the show cause notices issued under section 274 of the Act did not specify the charges clearly, failing to distinguish between "concealment of particulars of income" or "furnishing inaccurate particulars of income." Citing relevant case laws, including decisions by the Karnataka High Court and the Bombay High Court, the Assessee contended that penalties imposed based on defective show cause notices were invalid. The Assessee highlighted that the Hon'ble Supreme Court had dismissed a Special Leave Petition (SLP) filed by the revenue challenging the decision of the Karnataka High Court, further supporting the argument against the validity of the penalties.

Upon review, the ITAT observed that the show cause notices indeed lacked specificity regarding the charges against the Assessee. The notices did not strike out irrelevant portions, leading to ambiguity. Relying on the legal precedents cited by the Assessee, including decisions by various High Courts and the ITAT, the ITAT concluded that the imposition of penalties based on such defective show cause notices could not be sustained. Consequently, the ITAT held that the penalties imposed on the Assessee were not valid and directed their cancellation.

Therefore, the ITAT allowed the appeals of the Assessee, emphasizing the importance of clear and specific show cause notices in penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961. The judgment underscored the necessity for precise charges to be communicated to the Assessee to ensure a fair and valid penalty imposition process.