2018 (3) TMI 1202 - AT - Income Tax

Penalty u/s 271(1)(c) - whether the charge is of concealment of particulars of income or furnishing of inaccurate particulars of income? - non specification of charge - 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. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961.
2. Adequacy of the show cause notice issued under Section 274 of the Act.

Issue-wise Detailed Analysis:

1. Validity of Penalty Imposed under Section 271(1)(c) of the Income-tax Act, 1961:

The appeal concerns the upholding of a penalty of ?22,186/- imposed by the Assessing Officer (AO) under Section 271(1)(c) of the Income-tax Act, 1961. The penalty was levied following a search and seizure operation under Section 132(1) of the Act conducted on the Paul Group of cases. The AO observed that the assessee had shown a loan from Sri Ranjan Kumar Paul amounting to ?1,00,000/- each year, which the assessee later admitted was income from undisclosed sources. Consequently, the AO treated this as concealed income and initiated penalty proceedings under Section 271(1)(c), which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].

2. Adequacy of the Show Cause Notice Issued under Section 274 of the Act:

The primary contention of the assessee was that the show cause notice issued under Section 274, read with Section 271, did not specify the charge against the assessee—whether it was for concealment of particulars of income or furnishing inaccurate particulars of income. The notice used a standard proforma without striking out the irrelevant portions, leading to ambiguity. The assessee's counsel cited several judicial precedents, including the Hon’ble Karnataka High Court's decision in CIT vs. SSA’s Emerald Meadows and CIT vs. Manjunatha Cotton and Ginning Factory, which held that such ambiguity renders the penalty proceedings invalid.

The Tribunal examined the arguments and noted that the issue of specifying the charge in the show cause notice is crucial. It referred to various case laws, including decisions by the Bombay High Court and Patna High Court, which suggested that the notice's language or non-striking of inaccurate portions does not invalidate the notice if the assessee is aware of the charges. However, the Tribunal preferred the view of the Karnataka High Court, which mandates clear specification of the charge in the notice.

The Tribunal concluded that the show cause notice issued in the present case did not specify the charge against the assessee, thus failing to meet the requirements laid down by the Karnataka High Court. Consequently, the imposition of the penalty could not be sustained.

Conclusion:

Respecting the coordinate bench's prior order, the Tribunal held that the penalty imposed and confirmed by the CIT(A) could not be sustained due to the defective show cause notice. Therefore, the penalty was deleted, and the appeal of the assessee was allowed. The order was pronounced in the open court on 21st March 2018.