2019 (6) TMI 436 - AT - Income Tax

Penalty u/s. 271(1)(c) - addition of undisclosed sale of jute bags Non specification of charge - defective notice - HELD THAT - Following the decision in the case of Jeetmal Choraria Vs. ACIT 2017 (12) TMI 883 - ITAT, KOLKATA where it is held that the show cause notice issued u/s 274 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 does not strike out the inappropriate words - thus in these circumstances, we are of the view that imposition of penalty cannot be sustained - Decided in favor of assessee.

Issues Involved:
1. Validity of the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961.
2. Defectiveness of the show cause notice under Section 274 read with Section 271 of the Act.
3. Applicability of judicial precedents regarding specific charges in penalty notices.

Detailed Analysis:

1. Validity of the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961:
The primary issue in this appeal was the validity of the penalty of ?75,940/- imposed by the Assessing Officer (AO) under Section 271(1)(c) of the Income-tax Act, 1961. The penalty was levied on the grounds of alleged suppression of income due to undisclosed sales of jute bags. The AO determined the total income at ?12,63,120/- against the returned income of ?9,01,923/-, adding ?2,45,763/- as undisclosed income. The penalty proceedings were initiated on 21.03.2015, and the AO imposed the penalty after considering the assessee's reply.

2. Defectiveness of the show cause notice under Section 274 read with Section 271 of the Act:
The appellant challenged the penalty on the grounds that the show cause notice issued under Section 274 read with Section 271 was defective. The notice did not specify whether the penalty was for "concealment of particulars of income" or for "furnishing inaccurate particulars of income." The relevant portion of the notice stated: “Whereas in the course of proceedings before me for the assessment year 2011-12 it appears to me that you have concealed the particulars or furnished inaccurate particulars of such income.” The appellant argued that the failure to strike out the irrelevant portion rendered the notice vague and non-specific, thus invalidating the penalty proceedings.

3. Applicability of judicial precedents regarding specific charges in penalty notices:
The appellant's counsel cited several judicial precedents to support their case. Notably, the Karnataka High Court in CIT vs. SSA’s Emerald Meadows and CIT vs Manjunatha Cotton and Ginning Factory held that penalty proceedings are invalid if the show cause notice does not specify the charge. The Supreme Court dismissed the Revenue's appeal against this view, reinforcing the requirement for specific charges in penalty notices.

The Tribunal also referred to the Bombay High Court's decision in CIT vs Shri Samson Perinchery, which aligned with the Karnataka High Court's view. Conversely, the Revenue cited cases where courts held that the absence of specific charges in the notice does not invalidate penalty proceedings, provided the assessee was given an opportunity to be heard.

The Tribunal analyzed these conflicting views and noted that where two views exist, the view favorable to the assessee should be followed. The Tribunal preferred the Karnataka High Court's view, emphasizing the necessity of specific charges in the show cause notice for penalty proceedings.

Conclusion:
The Tribunal concluded that the penalty imposed under Section 271(1)(c) could not be sustained due to the defective show cause notice, which failed to specify the charge against the assessee. The Tribunal directed the cancellation of the penalty, allowing the appeal in favor of the assessee. The order was pronounced in the open court on 7th June, 2019.

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