2018 (3) TMI 1026 - AT - Income Tax

Penalty u/s 271(1)(c) - unexplained cash deposits in bank account - validity of notice - absence of specific charge - Held that - Suppressio vari , or suppression of truth , which has, in section 271(1)(c) of the IT Act, as its equivalent, concealment of income , and suggestio falsi , literally, suggesting or stating a falsehood , which manifests itself as furnishing of inaccurate particulars thereof , are two distinctly separate charges; that leveling of either of these charges has to be explicitly brought to the notice/knowledge of the assessee, sans which, the assessee, under a nebulous notice containing both these charges, is rendered incapable of defending the charge per se. This would be in utter violation of the principles of natural justice, such notice being null and void ab initio. It is also pertinent to note at this juncture that the notice u/s 274 is a mandatory statutory notice without which, the initiation of penalty proceedings would be nugatory, nay, non est in the eye of the law. Therefore, the argument of the Department that where initiation of penalty in the Assessment Order, the levy in the penalty order and the confirmation of such penalty in the first appellate order are on one and the same charge, the contents of the notice u/s 274 are of no effect, the assessee having been duly apprised of the specific charge against them, is not acceptable in law. Therefore, particularly following Manjunatha (2013 (7) TMI 620 - KARNATAKA HIGH COURT), we hold that the notices under challenge are not in conformity with the law and they are void ab initio. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the penalty notice under Section 274 read with Section 271(1)(c) of the Income Tax Act.
2. Specificity of the charge in the penalty notice.
3. Applicability of judicial precedents on the validity of the penalty notice.

Detailed Analysis:

1. Validity of the Penalty Notice under Section 274 read with Section 271(1)(c) of the Income Tax Act:
The primary issue was whether the penalty notice issued under Section 274 read with Section 271(1)(c) was valid. The notice was challenged on the grounds that it did not specify the exact charge against the assessee, i.e., whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income." The tribunal examined various judicial precedents and concluded that a valid notice under Section 274 must explicitly state the grounds for the penalty. The tribunal found that the notice in question was vague and did not meet the statutory requirements, rendering it void ab initio.

2. Specificity of the Charge in the Penalty Notice:
The tribunal emphasized that the penalty notice must clearly specify the charge against the assessee. It referred to the notice which mentioned both "concealment of income" and "furnishing inaccurate particulars," without specifying which charge was being pursued. This lack of specificity was found to violate the principles of natural justice, as it did not allow the assessee to prepare an adequate defense. The tribunal relied on the judgment in "CIT vs. Manjunath Cotton and Ginning Factory," which held that a penalty notice must clearly state the grounds mentioned in Section 271(1)(c).

3. Applicability of Judicial Precedents on the Validity of the Penalty Notice:
The tribunal considered various judicial precedents cited by both the assessee and the revenue. It distinguished the case of "S.V. Angidi Chettiar" and found it not applicable to the present case. The tribunal also examined the case of "Mak Data (P) Ltd. vs. CIT" and found that it did not address the issue of specificity in the penalty notice. The tribunal placed significant reliance on the Karnataka High Court's judgment in "CIT vs. Manjunath Cotton and Ginning Factory," which was followed by various other judgments, including "CIT vs. SSA Emerald Meadows" and "Dilip N. Shroff vs. JCIT." These judgments consistently held that a penalty notice must be specific about the charge against the assessee.

The tribunal also noted that the defect in the notice could not be cured under Section 292BB of the Act, which deals with minor defects. The tribunal held that the defect in the notice was not minor but fundamental, affecting the very validity of the penalty proceedings.

Conclusion:
The tribunal concluded that the penalty notices issued under Section 274 read with Section 271(1)(c) were not in conformity with the law and were void ab initio. Consequently, all proceedings based on these notices, including the impugned penalty orders, were quashed. The appeals were allowed in favor of the assessees.