2017 (12) TMI 1350 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - Held that - Initiation of penalty proceedings is invalid as irrelevant portion of a notice not having been struck off by the Assessing Officer. The show cause notice issued in the present case u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. See Jeetmal Choraria vs.- ACIT 2017 (12) TMI 883 - ITAT, KOLKATA - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the penalty proceedings initiated under section 271(1)(c) of the Income Tax Act, 1961.
2. Specificity of the charge in the show-cause notice issued under section 274 of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of the Penalty Proceedings:
The primary issue raised by the assessee was the validity of the penalty proceedings initiated under section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer (AO) imposed a penalty of ?2,92,927/- on the grounds of undisclosed business income, undisclosed investment in NSC/KVPs along with interest, and interest income on FDs. The assessee argued that the initiation of penalty proceedings was invalid due to a defective show-cause notice under section 274, which did not specify whether the charge was for "concealing particulars of income" or "furnishing inaccurate particulars of income."

2. Specificity of the Charge in the Show-Cause Notice:
The assessee's counsel contended that the show-cause notice issued by the AO was defective because it did not strike off the irrelevant portion, thereby failing to specify the exact charge. This argument was supported by the decisions of the Hon'ble Karnataka High Court in CIT vs. SSA’s Emerald Meadows and Manjunatha Cotton & Ginning Factory, which held that such a defect renders the penalty proceedings invalid. The Hon'ble Supreme Court also dismissed the SLP filed by the Department against the Karnataka High Court's decision, reinforcing this view.

The Department's representative, however, relied on various judgments, including those from the Hon'ble Calcutta High Court and ITAT Mumbai, which suggested that the absence of specific terms in the show-cause notice does not invalidate the penalty proceedings as long as the assessee was given an opportunity to be heard.

Tribunal's Findings:
The Tribunal considered both sides' submissions and referred to a similar case, Jeetmal Choraria vs. ACIT, where the penalty was canceled due to a defective show-cause notice. The Tribunal noted that the show-cause notice in the present case also did not specify the charge against the assessee, making it unsustainable.

The Tribunal found that the line of reasoning by the Hon'ble Karnataka High Court, which favors the assessee in cases of defective show-cause notices, should be followed. They emphasized that when two views are available, the view favorable to the assessee should be preferred.

Conclusion:
The Tribunal concluded that the penalty imposed under section 271(1)(c) could not be sustained due to the defective show-cause notice that did not specify the charge against the assessee. Consequently, the penalty was canceled, and the appeal of the assessee was allowed. The order was pronounced in the open Court on 22nd December 2017.