2018 (7) TMI 1254 - AT - Income Tax

Penalty u/s 271(1)(c) - Held that - Learned Departmental Representative s only argument is that the assessment order duly clarified that the impugned penalty had been initiated for processing inaccurate particulars of income. We find no merit in Revenue s above plea since it is only the relevant notice issued u/s. 274 of the Act that carries prime significance in the penalty proceedings in question. We therefore accept assessee s argument on merits.This assessee s appeal is accordingly allowed.

Issues Involved:
1. Delay in filing the appeal.
2. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for alleged concealment of income or furnishing inaccurate particulars of income.
3. Validity of the penalty show cause notice under Section 274 of the Income Tax Act, 1961.

Detailed Analysis:

1. Delay in Filing the Appeal:
The assessee's appeal suffered from a 193-day delay in filing. The assessee submitted a condonation petition dated 04.06.2018, explaining that the delay was due to the inadvertent mixing of the case file with other records by office staff. This explanation was supported by an affidavit from the assessee's practicing CA dated 27.06.2018. The Revenue did not rebut these claims. Consequently, the delay was deemed neither intentional nor deliberate, and the appeal was allowed to proceed.

2. Imposition of Penalty under Section 271(1)(c):
The core issue was the correctness of the penalty amounting to ?2,04,180 imposed for the alleged undisclosure of interest income amounting to ?6,60,776. The Assessing Officer had added this amount in the assessment order dated 12.11.2014, which had attained finality. The penalty was imposed on the grounds of concealment of income, as the interest income was disclosed only during scrutiny. The assessee contended that the penalty show cause notice did not specify whether the penalty was for furnishing inaccurate particulars of income or for concealment of income. The CIT(A) upheld the penalty, asserting that both limbs of Section 271(1)(c) were applicable.

3. Validity of the Penalty Show Cause Notice:
The assessee argued that the penalty show cause notice was defective as it did not clearly specify the charge—whether it was for concealment of income or for furnishing inaccurate particulars. The tribunal considered this argument, referencing a coordinate bench decision in ITA 687/Kol/2016 (DCIT vs. M/s Jai Loknath Oil Extraction (P) Ltd.) and other related judgments. The tribunal noted that the relevant notice under Section 274 must clearly specify the charge against the assessee. The tribunal found that the notice in question did not strike out the inappropriate words, rendering it defective.

The tribunal also referenced various case laws, including the Hon'ble Karnataka High Court's decision in the case of Manjunatha Cotton and Ginning, which emphasized the necessity for clarity in the show cause notice. The tribunal preferred to follow the view favorable to the assessee, as per the established legal principle that when two views are available, the one favoring the assessee should be adopted.

The Revenue's argument that the assessment order clarified the initiation of penalty for furnishing inaccurate particulars was dismissed. The tribunal held that the notice under Section 274 carries prime significance in penalty proceedings. Therefore, the tribunal accepted the assessee's argument on merits and directed the cancellation of the penalty.

Conclusion:
The tribunal allowed the assessee's appeal, condoned the delay in filing, and directed the cancellation of the penalty imposed under Section 271(1)(c) due to the defective penalty show cause notice under Section 274. The order was pronounced in the open court on 18/07/2018.

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