2018 (8) TMI 655 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - defective notice u/s 274 - Held that - We find the notice dt. 29-12-2009 issued u/s. 274 r.w.s 271 of the Act, placed at page no. 1 of paper book, 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. No penalty - decided in favor of assessee.

Issues Involved:
1. Validity of the penalty notice issued under Section 274 read with Section 271(1)(c) of the Income Tax Act.
2. Interpretation of the requirement for specifying the charge in the penalty notice.
3. Applicability of judicial precedents on the validity of penalty notices.

Detailed Analysis:

1. Validity of the Penalty Notice Issued Under Section 274 Read with Section 271(1)(c) of the Income Tax Act:
The primary issue in this case was whether the penalty notice issued by the Assessing Officer (AO) under Section 274 read with Section 271(1)(c) of the Income Tax Act was valid. The notice did not specify the exact charge against the assessee, i.e., whether it was for "concealing particulars of income" or "furnishing inaccurate particulars of income." The assessee argued that this defect rendered the notice invalid, relying on the Supreme Court decision in SSA’s Emerald Meadows, which supported the requirement for specific charges in penalty notices.

2. Interpretation of the Requirement for Specifying the Charge in the Penalty Notice:
The assessee's counsel argued that the penalty notice was defective for not mentioning the specific charge, citing the Supreme Court decision in SSA’s Emerald Meadows. The CIT-A confirmed the penalty by relying on the Supreme Court decisions in MAK Data and Dharmendra Textiles, which did not specifically address the issue of specifying charges in penalty notices. The revenue's counsel argued that the notice's validity should be upheld based on various judicial precedents, including decisions from the Calcutta High Court, Bombay High Court, and ITAT Mumbai, which suggested that a mere mistake in the language or non-striking of inaccurate portions in the notice does not invalidate it.

3. Applicability of Judicial Precedents on the Validity of Penalty Notices:
The tribunal considered various judicial precedents cited by both parties. The revenue relied on decisions from the Calcutta High Court (Dr. Syamal Baran Mondal), Bombay High Court (CIT vs. Kaushalya, M/s. Maharaj Garage & Co.), and ITAT Mumbai (Trishul Enterprises, Earthmoving Equipment Service Corporation, Mahesh M. Gandhi). These decisions generally held that a defect in the notice does not invalidate the penalty proceedings if the assessee was given a reasonable opportunity to be heard.

However, the tribunal preferred to follow the Karnataka High Court's decision in the case of Manjunatha Cotton and Ginning, which emphasized the necessity of specifying the charge in the penalty notice. The tribunal also noted that the Supreme Court dismissed the SLP against the Karnataka High Court’s decision, thereby upholding its validity.

Conclusion:
The tribunal concluded that the penalty notice issued to the assessee was defective as it did not specify the charge of offense committed, i.e., whether it was for "concealing the particulars of income" or "furnishing inaccurate particulars of income." Following the principle that when there are two views on an issue, the view favorable to the assessee should be adopted, the tribunal preferred the Karnataka High Court's decision in Manjunatha Cotton and Ginning. Consequently, the penalty of ?2,81,653/- imposed by the AO and confirmed by the CIT-A was canceled. The appeal filed by the assessee was allowed. The order was pronounced in the open court on 08-08-2018.

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