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2018 (4) TMI 131 - AT - Income TaxPenalty u/s. 271(1)(c) - non specification of charge - 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 - Decided in favour of assessee.
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 under Section 274 of the Act. Issue-wise Detailed Analysis: 1. Validity of Penalty Imposed under Section 271(1)(c): The assessee filed an appeal against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] which upheld the penalty of ?2,98,117/- imposed by the Assessing Officer (AO) under Section 271(1)(c) of the Income-tax Act, 1961. The AO had determined the total income at ?10,56,150/- after making additions during the assessment proceedings. The additions included disallowance of personal expenses, depreciation, bogus sundry creditors, other sources, and Long Term Capital Gain. The AO imposed the penalty on the grounds that the assessee could not provide a justifiable explanation for the additions, treating it as deliberate filing of inaccurate particulars of income. The CIT(A) confirmed this penalty. 2. Adequacy of the Show Cause Notice under Section 274: The primary contention of the assessee was that the show cause notice issued under Section 274 read with Section 271 of the Act was defective. The notice did not specify whether the penalty was for concealment of particulars of income or furnishing inaccurate particulars of income. The assessee argued that the AO had not struck out the irrelevant portion in the notice, making it ambiguous. The Tribunal examined the show cause notice and found that it did not specify the exact charge against the assessee. The Tribunal referred to several judicial precedents, including the Karnataka High Court decision in CIT vs. SSA’s Emerald Meadows, which held that a penalty notice must clearly specify the charge. The Supreme Court had dismissed the Special Leave Petition (SLP) against this decision. The Tribunal also considered the Bombay High Court decision in CIT vs. Shri Samson Perinchery, which supported the same view. The Departmental Representative (DR) opposed the assessee's submission, citing various case laws. However, the Tribunal noted that these cases, including the Calcutta High Court decision in Dr. Syamal Baran Mondal vs. CIT, dealt with the recording of satisfaction rather than the specificity of the charge in the show cause notice. The Tribunal highlighted that different High Courts had divergent views on this issue. The Bombay High Court in CIT vs. Kaushalya held that a mere mistake in the language or non-striking of the inaccurate portion does not invalidate the notice. However, the Karnataka High Court in Manjunatha Cotton & Ginning Factory emphasized the necessity of a specific charge in the show cause notice. The Tribunal concluded that in cases where two views exist, the view favorable to the assessee should be followed. Therefore, it preferred the Karnataka High Court's view, which required the show cause notice to specify the charge clearly. Conclusion: The Tribunal held that the imposition of penalty under Section 271(1)(c) could not be sustained due to the defective show cause notice under Section 274. The penalty was directed to be canceled, and the appeal of the assessee was allowed. The order was pronounced in the open court on 28th March 2018.
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