2016 (2) TMI 1322 - AT - Income Tax

Penalty levied u/s. 271(1) (c) - Defective notice - non specification of charge - addition made by the ld.AO towards cash deposits in the bank account u/s. 68 and interest income from deposits - HELD THAT - We find lot of force in the arguments of the assessee that the ld.AO had not mentioned any specific charge on which the said penalty proceedings have been initiated by him either in the assessment order or in the show-cause notice issued u/s. 271(1) ( c) r.w.s 274 of the Act. We hold that mentioning specific charge is pre-requisite for initiating the penalty proceedings on the assessee. Show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. Following the decision of MANJUNATHA COTTON AND GINNING FACTORY MANJUNATH GINNING AND PRESSING VEERABHADRAPPA SANGAPPA AND CO. V.S. LAD AND SONS G.M. EXPORT 2013 (7) TMI 620 - KARNATAKA HIGH COURT we hold that the orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled - Decided in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Specificity of the charge in penalty proceedings.
3. Proper opportunities for the assessee to present their case.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The primary issue in this appeal is whether the penalty under Section 271(1)(c) of the Act is justified. The assessee's assessment was completed under Section 143(3) with additions for cash deposits and interest income. The Assessing Officer (AO) initiated penalty proceedings for concealment of income and furnishing inaccurate particulars without specifying the exact charge. The penalty was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], leading to the current appeal.

2. Specificity of the Charge in Penalty Proceedings:
The tribunal found merit in the argument that the AO did not specify the charge for which the penalty proceedings were initiated. The tribunal emphasized that mentioning a specific charge is a prerequisite for initiating penalty proceedings. It referenced several decisions to support this view:
- In *Chandra Prakash Bubna vs. ITO*, it was held that the AO must be satisfied about the specific charge of either concealing income or furnishing inaccurate particulars before levying any penalty.
- The tribunal also cited *Suvaprasanna Bhattacharya vs. ACIT* and the Hon'ble Karnataka High Court in *CIT & Anr vs. Manjunatha Cotton and Ginning Factory*, which stressed that the satisfaction of the AO regarding the specific charge must be discernible from the assessment order.
- The tribunal highlighted that a general or ambiguous charge does not meet the legal requirements, as seen in *Ms. Madhushree Gupta vs. Union of India*.

3. Proper Opportunities for the Assessee:
The assessee contended that they were not given proper opportunities to present their case. The tribunal, while addressing this, noted that the AO's failure to specify the charge also implied a lack of proper procedural adherence, which could have impacted the assessee's ability to defend themselves effectively.

Conclusion:
The tribunal concluded that the penalty proceedings were not properly initiated due to the lack of a specific charge. It held that the imposition of penalty under Section 271(1)(c) was unsustainable and canceled the penalty. The appeal by the assessee was allowed, and the tribunal emphasized the necessity for clear and specific charges in penalty proceedings to uphold the principles of natural justice.

Order Pronouncement:
The order was pronounced in the open court on 02-02-2016, allowing the appeal of the assessee and canceling the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.