2018 (2) TMI 2094 - AT - Income Tax

Penalty u/s 271(1)(c) - Non specification of clear charge in notice - defective notice u/s 274 - introduction of fresh share capital including premium - AO held that the purported fresh share capital along with share premium was nothing but assessee s own money conduited under the garb of fresh share capital into its books of account - HELD THAT - Imposing of penalty u/s 271(1)(c) of the Act is bad in law and invalid for the reason that the show cause notice u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. See MANJUNATHA COTTON AND GINNING FACTORY 2013 (7) TMI 620 - KARNATAKA HIGH COURT - Also decided in SHRI SAMSON PERINCHERY 2017 (1) TMI 1292 - BOMBAY HIGH COURT imposition of penalty on defective show cause notice without specifying the charge against the assessee cannot be sustained Thus imposition of penalty and subsequently confirmed by the Ld. CIT(A) in the present case cannot be sustained and the same is hereby deleted. Appeal of assessee is allowed.

Summary

Issues Involved:
1. Validity of penalty u/s 271(1)(c) of the Income-tax Act, 1961.
2. Specificity of the charge in the show cause notice issued u/s 274 r.w.s. 271 of the Act.
3. Legal precedents concerning defective show cause notices.

Issue-Wise Detailed Analysis:

1. Validity of penalty u/s 271(1)(c) of the Income-tax Act, 1961:
The appeal challenges the confirmation of a penalty amounting to Rs.2,55,49,021/- under Section 271(1)(c) of the Income-tax Act, 1961. The penalty was imposed by the Assessing Officer (AO) after determining that the assessee failed to substantiate its claim regarding the introduction of fresh share capital, which was treated as unexplained cash credit. The AO initiated penalty proceedings and issued a notice u/s 271(1)(c)/274, which was subsequently confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].

2. Specificity of the charge in the show cause notice issued u/s 274 r.w.s. 271 of the Act:
The core argument presented by the assessee's counsel was that the show cause notice issued u/s 274 did not specify the exact charge against the assessee, i.e., whether it was for concealment of particulars of income or furnishing inaccurate particulars of income. The notice contained a generic statement: “Whereas in the course of proceedings before me for the assessment year 2007-08 it appears that you have concealed the particulars or furnished inaccurate particulars of such income.” This lack of specificity was argued to render the penalty proceedings invalid.

3. Legal precedents concerning defective show cause notices:
The assessee's counsel cited several judicial precedents to support their argument:
- CIT vs. SSA’s Emerald Meadows (Karnataka High Court): The court held that a penalty notice must specify the charge clearly. The Supreme Court dismissed the Special Leave Petition (SLP) against this decision.
- CIT vs. Manjunatha Cotton and Ginning Factory (Karnataka High Court): It was held that a penalty notice must specify whether the charge is for concealment of income or furnishing inaccurate particulars.
- CIT vs. Shri Samson Perinchery (Bombay High Court): This decision followed the Karnataka High Court's ruling, emphasizing the necessity of specifying the charge in the penalty notice.
- Suvaprasanna Bhattacharya vs. ACIT (ITAT Kolkata): The Tribunal followed the same principle regarding the specificity of charges in the penalty notice.

The Department's Representative (DR) opposed these submissions, citing various case laws, including:
- Dr. Syamal Baran Mondal vs. CIT (Calcutta High Court): This decision was distinguished as it dealt with the recording of satisfaction rather than the specificity of the charge.
- CIT vs. Kaushalya (Bombay High Court): It was held that a mistake in the language or non-striking of the inaccurate portion in the notice does not invalidate the penalty proceedings if the assessee is aware of the charges.
- Earthmoving Equipment Service Corporation vs. DCIT (ITAT Mumbai): The Tribunal did not follow the Karnataka High Court's decision, reasoning that the penalty was deleted for multiple reasons, not just the defective notice.
- Mahesh M. Gandhi vs. ACIT (ITAT Mumbai): The Tribunal held that the defect in the notice does not vitiate penalty proceedings if the intention of the charge is clear from the assessment order.

The Tribunal, after considering these arguments, preferred to follow the Karnataka High Court's decision in Manjunatha Cotton and Ginning Factory, stating that where two views are available, the one favorable to the assessee should be followed. The Tribunal noted that the show cause notice in the present case did not specify the charge against the assessee, thus rendering the penalty proceedings unsustainable.

Conclusion:
The Tribunal held that the imposition of penalty u/s 271(1)(c) and its confirmation by the CIT(A) could not be sustained due to the defective show cause notice. Consequently, the penalty was deleted, and the appeal of the assessee was allowed. The order was pronounced in the open court on 28.02.2018.