2018 (5) TMI 421 - AT - Income Tax

Penalty u/s. 271(1)(c) - 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. We are of the view that imposition of penalty cannot be sustained. - Decided in favour of assessee.

Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the Income-tax Act, 1961.
2. Validity of the show cause notice issued under Section 274 read with Section 271 of the Act.
3. Specificity of charges in the show cause notice.

Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], Durgapur, dated 31.03.2015, for the Assessment Year (AY) 2010-11. The CIT(A) upheld the penalty of ?3,01,031/- 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 ?15,25,801/- against the assessee's returned income of ?2,55,775/-, adding ?12,70,039/- under various heads. Considering this as suppressed and undisclosed income, the AO initiated penal proceedings under Section 271(1)(c) on 30.10.2012 and imposed a penalty of ?3,92,440/-. The CIT(A) partly allowed the appeal but confirmed the penalty on an addition of ?11,03,666/-, resulting in a penalty of ?3,01,031/-. The assessee appealed against this confirmation.

2. Validity of the Show Cause Notice Issued under Section 274 Read with Section 271 of the Act:
The primary contention of the assessee was that the show cause notices issued under Section 274 read with Section 271 of the Act did not specify the specific charge against the assessee, i.e., whether the assessee was guilty of concealing particulars of income or furnishing inaccurate particulars of income. The notice did not strike out the irrelevant portion, making it ambiguous. The assessee's counsel cited the decision of the Karnataka High Court in CIT vs. SSA’s Emerald Meadows, which followed the ruling in CIT vs. Manjunatha Cotton and Ginning Factory, holding that such ambiguity in the show cause notice renders the penalty proceedings invalid. The Supreme Court had dismissed the Special Leave Petition (SLP) against this decision, reinforcing its validity.

3. Specificity of Charges in the Show Cause Notice:
The Tribunal noted that the show cause notice did not specify the charge against the assessee, which is a requirement for valid penalty proceedings. The Tribunal referenced several decisions, including those from the Bombay High Court and the ITAT, which supported the necessity of specific charges in the notice. The Tribunal emphasized that the penalty proceedings are quasi-criminal in nature, and the principles of natural justice require the assessee to be clearly informed of the charges. The Tribunal preferred the view of the Karnataka High Court, which mandates specificity in the show cause notice, over the contrary view of the Bombay High Court.

Conclusion:
The Tribunal held that the imposition of penalty could not be sustained due to the defective show cause notice, which did not specify whether the charge was for concealment of income or furnishing inaccurate particulars. The Tribunal directed that the penalty be canceled, allowing the appeal of the assessee. The order was pronounced in the open court on 26.04.2018.

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