2018 (4) TMI 795 - AT - Income Tax

Penalty u/s. 271(1)(c) - defective notice - Held that - We find that the notice dt. 31-12-2007 issued u/s. 274 r.w.s 271 of the Act does not specify the charge of offence committed by the assessee viz whether had concealed the particulars of income or had furnished inaccurate particulars of income. Hence the said notice is to be held as defective. - 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. Applicability of judicial precedents regarding defective penalty notices.

Detailed Analysis:

1. Validity of the Penalty Notice:
The primary issue in this appeal was whether the penalty notice issued under Section 274 read with Section 271(1)(c) of the Income Tax Act was valid. The Assessee contended that the notice dated 31-12-2007 was defective as it did not specify the charge of offense, i.e., whether the penalty was for concealing particulars of income or for furnishing inaccurate particulars of income. This contention was supported by the decision of the Hon'ble Karnataka High Court in the case of CIT vs SSA’s Emerald Meadows, which was upheld by the Hon'ble Supreme Court by dismissing the Special Leave Petition (SLP) filed by the Revenue.

2. Applicability of Judicial Precedents:
The Revenue relied on various judicial precedents to argue that the penalty notice, even if defective, would not invalidate the penalty proceedings. These included decisions from the Hon'ble Calcutta High Court, Hon'ble Bombay High Court, and various benches of the ITAT, which held that mere non-striking of the inaccurate portion in the notice does not invalidate the notice or the penalty proceedings. Specifically, the Revenue cited the judgments in Dr. Syamal Baran Mondal vs CIT, Trishul Enterprises vs DCIT, and Maharaj Garage & Co. vs CIT, among others.

Tribunal's Findings:
1. Defective Notice: The Tribunal found that the notice issued on 31-12-2007 was indeed defective as it did not specify the charge against the Assessee. The Tribunal noted that the notice failed to strike out the inappropriate words, making it unclear whether the penalty was for concealment of income or furnishing inaccurate particulars of income.

2. Judicial Precedents: The Tribunal preferred to follow the decision of the Hon'ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory, which held that a defective notice under Section 274 is invalid. The Tribunal emphasized that when there are two views on an issue, the view favorable to the Assessee should be adopted, as enunciated by the Hon'ble Supreme Court in the case of Vegetable Products Ltd.

3. Supreme Court's Dismissal of SLP: The Tribunal also noted that the Hon'ble Supreme Court had dismissed the SLP filed by the Revenue against the decision in SSA’s Emerald Meadows, thereby upholding the view that a defective notice is not maintainable.

Conclusion:
The Tribunal concluded that the penalty notice issued to the Assessee was defective and, therefore, the imposition of penalty could not be sustained. The penalty of ?32,54,178/- levied by the AO and confirmed by the CIT-A was canceled. The appeal of the Assessee was allowed in full.

Result:
The appeal was allowed, and the penalty imposed under Section 271(1)(c) of the Income Tax Act was canceled. The Tribunal's order was pronounced in the open court on 13-04-2018.