2018 (7) TMI 573 - AT - Income Tax

Penalty u/s 271(1)(c) - defective show cause notice without specifying the charge against the assessee - Held that - Imposition of penalty on defective show cause notice without specifying the charge against the assessee cannot be sustained 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. Defectiveness of the show cause notice under Section 274 of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Validity of Penalty under Section 271(1)(c)
The primary issue revolves around the validity of the penalty imposed by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961. The AO found discrepancies in the assessee's accounts, specifically in the sundry creditors and the set-off and brought forward of losses. Consequently, the AO imposed a penalty of ?40,91,415/-. The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who deleted the penalty. The Revenue then appealed to the ITAT.

Issue 2: Defectiveness of Show Cause Notice under Section 274
The assessee's counsel argued 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." This ambiguity was highlighted as a significant procedural lapse. The counsel cited several judicial precedents, including the Karnataka High Court's decision in CIT vs. SSA’s Emerald Meadows and the Bombay High Court's decision in CIT vs. Shri Samson Perinchery, which held that such ambiguity renders the penalty proceedings invalid.

Tribunal's Observations:
The Tribunal noted that the show cause notice indeed did not specify the charge against the assessee, as it failed to strike out the irrelevant portions. This defect was seen as a non-application of mind by the AO. The Tribunal referred to various case laws, including the Karnataka High Court's decision in Manjunatha Cotton and Ginning Factory, which emphasized the necessity of specifying the charge in the show cause notice.

Revenue's Arguments:
The Revenue opposed the assessee's submissions, citing multiple case laws. However, the Tribunal found that the cited cases either did not directly address the issue of a defective show cause notice or were not applicable to the present context.

Tribunal's Decision:
The Tribunal followed the principle that where two views exist, the one favorable to the assessee should be adopted. It preferred the view of the Karnataka High Court, which mandates that the specific charge must be mentioned in the show cause notice. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the penalty, confirming that the penalty imposition could not be sustained due to the defective notice.

Conclusion:
The Tribunal dismissed the Revenue's appeal and the assessee's supportive cross-objection, confirming the deletion of the penalty imposed under Section 271(1)(c) due to the defective show cause notice under Section 274. The order was pronounced in the open court on 04.07.2018.