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2019 (4) TMI 212 - AT - Income TaxPenalty u/s 271(1)(c) - defective notice issued u/s. 274 - non specification of charge - non of strike out the inappropriate words in notice - HELD THAT - 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. See COMMISSIONER OF INCOME TAX -VS- MANJUNATHA COTTON AND GINNING FACTORY (2013 (7) TMI 620 - KARNATAKA HIGH COURT). Also see COMMISSIONER OF INCOME TAX & ANR. VERSUS M/S SSA S EMERALD MEADOWS 2016 (8) TMI 1145 - SUPREME COURT - Decided in favour of assessee.
Issues Involved:
1. Defective notice under Section 274 read with Section 271(1)(c) of the Income Tax Act. 2. Validity of penalty imposition based on the defective notice. 3. Precedents and judicial interpretations regarding defective penalty notices. Issue-wise Detailed Analysis: 1. Defective Notice under Section 274 read with Section 271(1)(c) of the Income Tax Act: The primary issue raised by the Assessee was that the notice dated 31/12/2009 issued by the Assessing Officer (AO) under Section 274 read with Section 271(1)(c) of the Act was defective for not specifying the exact charge, i.e., whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. The Assessee relied on the Supreme Court decision in SSA’s Emerald Meadows to argue that such a defective notice invalidates the penalty proceedings. 2. Validity of Penalty Imposition Based on the Defective Notice: The Assessee contended that the penalty imposed by the AO and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] was not maintainable in law due to the defective notice. The Department, represented by the DR, argued that the penalty should be upheld and referred to various judicial precedents to support their stance that mere defects in the notice do not invalidate penalty proceedings. 3. Precedents and Judicial Interpretations Regarding Defective Penalty Notices: The Department cited several judgments, including those from the Calcutta High Court and Mumbai ITAT, which held that a defective notice does not necessarily invalidate penalty proceedings. They argued that the essence of Section 274 is to ensure the Assessee is given an opportunity to be heard, and minor defects in the notice should not invalidate the proceedings if the Assessee was aware of the charges and given a fair opportunity to respond. The Tribunal, however, found merit in the Assessee's arguments by referring to the Coordinate Bench's decision in Jeetmal Choraria and the Karnataka High Court's decision in Manjunatha Cotton and Ginning Factory. These decisions emphasized that a penalty notice must clearly specify the charge against the Assessee to be valid. The Tribunal noted that where two views exist, the one favoring the Assessee should be adopted, as established by the Supreme Court in Vegetable Products Ltd. The Tribunal also observed that the Supreme Court had dismissed the Revenue's Special Leave Petition (SLP) against the Karnataka High Court's decision, thereby reinforcing the view that a defective notice under Section 274 is invalid. Conclusion: The Tribunal concluded that the notice issued to the Assessee was indeed defective as it did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. Consequently, the penalty imposed by the AO and confirmed by the CIT(A) could not be sustained. The Tribunal set aside the CIT(A)'s order and canceled the penalty of ?9,46,506/- levied by the AO for the assessment year 2005-06, allowing the Assessee's appeal. Order Pronouncement: The appeal of the Assessee was allowed, and the order was pronounced in the Court on 29.03.2019.
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