2019 (1) TMI 1874 - AT - Income Tax

Levy of penalty under section 271(1)(c) - non specification of charge - defective notice u/s 274 - HELD THAT - From a perusal of this notice it is crystal clear that the charge for which penalty is proposed to be levied under section 271(1)(c) of the Act whether for concealment of income or for furnishing of inaccurate particulars of income is not specific. The law mandates that the authority who is proposing to impose penalty shall be certain as to the basis on which the penalty is being levied and the notice must reflect that specific reason so that the assessee to whom such notice is given can prepare himself regarding the defence which he would like to take to support his case. This is even enshrined in the principles of natural justice and as has been upheld by Hon ble Apex Court and other High Courts. See S M/S SSA S EMERALD MEADOWS 2016 (8) TMI 1145 - SC ORDER and M/S MANJUNATHA COTTON AND GINNING FACTORY OTHS. M/S. V.S. LAD SONS 2013 (7) TMI 620 - KARNATAKA HIGH COURT Thus we arrive at the considered view that the show cause notice which has not specified the charge and limb under which the penalty is proposed to be levied is void ab initio and the consequent penalty imposed on the basis of such notice is therefore illegal and bad in law and liable to be deleted. We therefore direct deletion of the penalty. - Decided in favour of assessee.

Summary

Issues:
- Levy of penalty under section 271(l)(c) without requisite satisfaction
- Absence of specific charge against the appellant for penalty under section 271(1)(c)
- Error in upholding penalty based on facts detected during assessment proceedings
- Lack of specificity in the show cause notice for penalty under section 271(1)(c)

Levy of Penalty under Section 271(l)(c) without Requisite Satisfaction:
The appellant challenged the penalty imposed under section 271(1)(c) for Assessment Year 2003-04, contending that the levy was illegal due to the absence of requisite satisfaction recorded while issuing the notice. The appellant argued that the charge of concealment of income lacked specific grounds, rendering the penalty unlawful. The Tribunal emphasized the importance of the authority being certain about the basis for imposing the penalty, in line with principles of natural justice. Citing legal precedents, including 'CIT vs. SSA’s Emerald Meadows' and 'Manjunath Cotton & Ginning Factory', the Tribunal concluded that the notice's lack of specificity rendered the penalty void ab initio, leading to its deletion.

Absence of Specific Charge Against the Appellant for Penalty under Section 271(1)(c):
The appellant further contended that no specific charge was recorded against them in the assessment order or the accompanying notice under section 274. The appellant argued that without a specific charge, the penalty under section 271(1)(c) could not have been levied or upheld. The Tribunal reiterated the requirement for the notice to specify the charge or limb under which the penalty is imposed, enabling the assessee to prepare a defense. Relying on legal principles and previous judgments, the Tribunal held that the absence of a specific charge rendered the penalty illegal and directed its deletion.

Error in Upholding Penalty Based on Facts Detected During Assessment Proceedings:
The appellant challenged the CIT(A)'s decision to uphold the penalty based on facts detected during the assessment proceedings. The appellant argued that all relevant facts were disclosed during the proceedings, and therefore, no penalty should be levied. The Tribunal analyzed the chronology of events and dates, highlighting the disclosure of information by the appellant. The Tribunal concluded that the appellant should not have been charged with concealment of income, and the penalty upheld by the CIT(A) was deemed wholly illegal.

Lack of Specificity in the Show Cause Notice for Penalty under Section 271(1)(c):
During the hearing, the appellant's representative pointed out the lack of specificity in the show cause notice for penalty under section 271(1)(c). The notice failed to clearly state whether the penalty was for concealment of income or furnishing inaccurate particulars. The Tribunal emphasized the importance of the notice being specific to enable the assessee to understand the basis for the penalty and prepare a defense. Citing various legal cases, the Tribunal held that the absence of a specific charge in the notice rendered the penalty illegal, leading to its deletion.