2018 (4) TMI 334 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - Held that - The show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed, thus penalty to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the Commissioner of Income Tax (Appeals) erred in deleting the penalty levied by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Deletion of Penalty under Section 271(1)(c)
The primary issue in this case is the deletion of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961 by the Commissioner of Income Tax (Appeals) [CIT(A)]. The penalty was initially levied by the Assessing Officer (AO) due to the assessee's admission of an additional income of ?4.50 crores during a survey under Section 133A of the Act. This additional income was disclosed in the income tax return, prompting the AO to initiate penalty proceedings for concealment of income or furnishing inaccurate particulars of income.

Arguments by Revenue:
The Revenue argued that the CIT(A) erred in deleting the penalty. The Departmental Representative (DR) relied on several case laws to support the contention that the absence of a "tick mark" on the relevant space in the Notice under Section 274 of the Act does not invalidate the penalty proceedings. The DR cited judgments from various courts, including the Hon'ble jurisdictional High Court and the ITAT Mumbai Bench, which held that the omission of specific terms in the notice does not necessarily invalidate the penalty proceedings if the satisfaction of the AO is evident from the order.

Arguments by Assessee:
The assessee's counsel contended that the show cause notice issued under Section 274 was defective as it did not specify the exact charge against the assessee—whether it was for concealment of income or furnishing inaccurate particulars of income. The counsel cited 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 a penalty notice must clearly specify the charge. The absence of such specificity renders the penalty proceedings invalid. The counsel also noted that the Hon'ble Supreme Court had dismissed the SLP filed by the Revenue against the Karnataka High Court's decision.

Tribunal's Findings:
The Tribunal examined the rival contentions and judicial pronouncements. It observed that the show cause notice in the present case did not specify the charge against the assessee, as it failed to strike out the inappropriate words. This lack of specificity in the notice was deemed a violation of the principles of natural justice, as it did not inform the assessee of the exact grounds on which the penalty was being imposed.

The Tribunal referred to the principles laid down by the Hon'ble Karnataka High Court in the Manjunatha Cotton and Ginning Factory case, which emphasized that the notice under Section 274 should clearly state whether the penalty is for concealment of income or furnishing inaccurate particulars. The Tribunal also noted that initiating penalty proceedings on one ground and imposing penalty on another is legally unsustainable.

Conclusion:
Based on the defective notice under Section 274 and the judicial precedents, the Tribunal concluded that the imposition of penalty in this case could not be sustained. It upheld the CIT(A)'s decision to delete the penalty and dismissed the Revenue's appeal.

Final Judgment:
The Revenue's appeal was dismissed, and the order pronounced in the open court on 04/04/2018 confirmed the deletion of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.