2020 (2) TMI 1486 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - Defective notice u/s 274 - non specification of charge as to whether it is for concealment of income or for furnishing of inaccurate particulars of income? - HELD THAT - From a perusal of the 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 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:
Appeal against penalty under section 271(1)(c) - Specificity of charge in penalty notice.

Analysis:
The appellant challenged the penalty imposed under section 271(1)(c) of the Income Tax Act, contending that the notice lacked specificity regarding the charge for which the penalty was being levied. The appellant argued that the notice did not clearly state whether the penalty was for concealment of income or furnishing inaccurate particulars of income. The appellant relied on legal precedents emphasizing the importance of specificity in penalty notices to enable the assessee to prepare a defense effectively. The respondent, however, supported the penalty, citing that the Assessing Officer had estimated the profit due to the assessee's non-cooperation, leading to the addition of income. The respondent invoked Explanation 1 to section 271(1)(c) to argue that the penalty was justified due to the failure of the assessee to substantiate their explanation.

During the hearing, the Tribunal emphasized the necessity of a penalty notice to specify the grounds for penalty under section 271(1)(c) clearly. It noted that the lack of specificity in the notice violated the principles of natural justice and cited legal authorities to support this view. Reference was made to the decision in 'CIT vs. SSA's Emerald Meadows' where the Apex Court upheld that penalty notices must specify the grounds for penalty under the relevant sections. Similarly, in 'CIT and Another vs. Manjunath Cotton & Ginning Factory', the High Court held that a notice must state whether the penalty is for concealment of income or furnishing inaccurate particulars of income. The Tribunal also referred to 'Meherjee Cassinath Holdings Pvt. Ltd vs. ACIT' where it was highlighted that penalty proceedings are quasi-criminal and must adhere to the principles of natural justice. Furthermore, the Tribunal cited 'Chandra Prakash Bubna vs. Income Tax Officer' where it was ruled that a penalty imposed without a specific charge was liable to be deleted.

Considering the legal precedents and the principles of natural justice, the Tribunal concluded that the penalty notice lacking specificity regarding the charge and limb under which the penalty was proposed to be levied was void ab initio. Consequently, the penalty imposed based on such a notice was deemed illegal and in violation of the law. Therefore, the Tribunal directed the deletion of the penalty, allowing the appeal of the assessee. The judgment was pronounced on 14/02/2020.