2019 (2) TMI 713 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - non specification of charge - defective notice - Held that - A.O. issued show cause notice which is also mentioned in the penalty order in which A.O. has put the column blank which did not specify under which limb of Section 271(1)(c) of the Act the penalty proceedings had been initiated i.e. whether for concealment of particulars of income or furnishing inaccurate particulars of income. Even in the assessment order A.O. did not mention as to under which limb of Section 271(1)(c) of the Act the penalty have been initiated against the assessee as noted above. Therefore the show cause notice for levy of the penalty itself is invalid and bad in law and as such the resultant proceedings have been vitiated. Once the assessee challenged the assumption of jurisdiction of the A.O. it would include the validity of the show cause notice which is mandatory before levy of the penalty. Since the notice itself is not legal therefore no penalty could be levied against the assessee - Decided in favour of assessee.

Summary

Issues:
- Challenge against the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.
- Validity of the show cause notice issued before the penalty imposition.
- Specificity requirement under Section 271(1)(c) for penalty initiation.

Analysis:

Issue 1: Challenge against Penalty Imposition
The case involved an appeal by the assessee against the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer (A.O.) had made additions to the income declared by the assessee, including disallowances related to car expenses. The A.O. issued a show cause notice before levying the penalty, which was confirmed by the Ld. CIT(A). The assessee contended that the car, although registered in the director's name, was used by the company. The Ld. CIT(A) upheld the penalty, prompting the appeal.

Issue 2: Validity of Show Cause Notice
The counsel for the assessee argued that the show cause notice issued by the A.O. lacked specificity as it did not mention the limb of Section 271(1)(c) under which the penalty was proposed. Citing legal precedents, the counsel claimed that the notice was invalid in law, rendering the penalty unjustifiable. The A.O., on the other hand, relied on the decisions of the lower authorities.

Issue 3: Precedent and Decision
In a similar case before the ITAT, Delhi Bench, it was held that a show cause notice must specify the limb of Section 271(1)(c) under which the penalty proceedings are initiated, i.e., for concealment of income particulars or furnishing inaccurate income particulars. The Tribunal, following the precedent, concluded that the show cause notice in the present case was deficient in specifying the relevant limb. As a result, the penalty imposition was deemed invalid, and the orders of the lower authorities were set aside, leading to the cancellation of the penalty.

The judgment highlighted the importance of a valid and specific show cause notice before the imposition of penalties under Section 271(1)(c) of the Income Tax Act, ensuring procedural fairness and adherence to legal requirements.