2018 (3) TMI 142 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - non specification of charge for the propose of the levy of penalty in the notice - defective notice - Held that - 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. The show cause notice u/s 274 of the Act does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. See Jeetmal Choraria Versus A.C.I.T., Circle-43 2017 (12) TMI 883 - ITAT, KOLKATA - Decided in favour of assessee.

Summary

Issues:
Appeals against cancellation of penalties under section 271(1)(c) of the Income Tax Act due to lack of specification of charges in the notice.

Analysis:
The judgment pertains to revenue's appeals challenging the cancellation of penalties by the Commissioner of Income Tax (Appeals) under section 271(1)(c) of the Income Tax Act. The Assessing Officer failed to specify the charge for imposing penalties in the notice under section 274 read with section 271(1)(c) of the Act. The lack of clarity in the notice was a crucial point of contention. Reference was made to various judicial precedents to support the argument that penalties cannot be sustained if the show cause notice does not clearly specify whether the charge is for concealing particulars of income or furnishing inaccurate particulars of income.

The legal debate centered on whether a vague notice, without specifying the charge against the assessee, renders the penalty proceedings invalid. The Hon'ble Karnataka High Court's decision in the case of CIT vs. Manjunatha Cotton & Ginning Factory was pivotal, emphasizing the importance of a clear charge in the notice. Contrary views were presented, including the Hon'ble Bombay High Court's stance that a notice need not be in a specific form as long as the assessee is informed of the proposed penalty to enable a defense.

The judgment highlighted conflicting decisions by different Tribunals and High Courts, underscoring the lack of uniformity on this issue. Ultimately, the Tribunal decided to follow the view favoring the assessee, as per the Hon'ble Karnataka High Court's ruling, which necessitates a clear charge in the notice. Consequently, the imposition of penalties was deemed unsustainable due to the ambiguity in the show cause notice, leading to the dismissal of all revenue's appeals.

In conclusion, the judgment underscores the significance of a well-defined charge in the show cause notice for imposing penalties under section 271(1)(c) of the Income Tax Act. The decision aligns with the principle that where two views exist, the one favorable to the assessee should prevail. The lack of specificity in the notice was deemed fatal to sustaining the penalties, emphasizing the importance of procedural compliance in penalty proceedings.