2017 (12) TMI 516 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - failure to specify the specific charge in the notice u/s 274 - Held that - We have perused the copy of show-cause notice u/s 274 r.w.s. 271(1)(c) of the Act dated 19.01.2011. The said notice does not contain the reference about the specific charge if it was issued for concealment of particulars of income or for furnishing inaccurate particulars. We find force in the submissions of ld. AR for the assessee, that the notice does not contain any reference about the specific charge, if the same was issued for concealment of income or furnishing inaccurate particulars. See CIT vs. Samson Perinchary (2017 (1) TMI 1292 - BOMBAY HIGH COURT) - Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of the penalty order passed under Section 271(1)(c) of the Income Tax Act, 1961.
2. Whether the penalty order was issued for concealment of income or furnishing inaccurate particulars of income.
3. Validity of the show-cause notice under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

1. Legitimacy of the Penalty Order:
The primary issue revolved around whether the penalty order under Section 271(1)(c) of the Income Tax Act, 1961, was justified. The assessee argued that the penalty was wrongly imposed as there was no "mens rea" or "guilty mind" involved. The claim under Section 36(1)(viia) was made in good faith based on the available data from various branches, and there was no concealment of income or furnishing of inaccurate particulars. The Tribunal noted that the mere disallowance of a claim does not automatically lead to the levy of penalty. The assessee had provided all necessary information and particulars, and there was no deliberate act of concealment.

2. Specificity of the Penalty Order:
The assessee raised an additional ground that the penalty order was bad in law because the Assessing Officer (AO) failed to specify whether the penalty was being levied for concealment of income or for furnishing inaccurate particulars of income. The Tribunal found merit in this argument, noting that the show-cause notice did not specify the exact charge against the assessee. The Tribunal referred to the decision of the Hon'ble Bombay High Court in CIT vs. Samson Perinchary, which emphasized the necessity of specifying the charge in the notice to allow the assessee to defend accordingly. The Tribunal concluded that the penalty order suffered from non-application of mind and was therefore invalid.

3. Validity of the Show-Cause Notice:
The Tribunal scrutinized the show-cause notice issued under Section 274 read with Section 271(1)(c) of the Act. It was observed that the notice was issued in a standard proforma without striking out the irrelevant clauses, thus failing to convey to the assessee the specific charge. This lack of specificity was seen as a reflection of non-application of mind by the AO. The Tribunal cited the Supreme Court's decision in Dilip N. Shroff, which held that such notices must comply with the principles of natural justice. The Tribunal also referred to the Karnataka High Court's decision in CIT v/s. Manjunatha Cotton and Ginning Factory, which held that failure to specify the charge in the notice renders the penalty invalid.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the penalty order was invalid due to the non-specific nature of the show-cause notice and the lack of clarity on whether the penalty was for concealment of income or furnishing inaccurate particulars. The Tribunal emphasized the importance of clear and specific charges in penalty notices to ensure compliance with the principles of natural justice. The appeal was allowed, and the penalty order was quashed.

Order Pronouncement:
The order was pronounced in the open court on the 16th day of June 2017.