2019 (8) TMI 1123 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - show cause notice has not struck off the irrelevant portion as to whether the charge against the assessee is concealing particulars of income or furnishing of inaccurate particulars of income - HELD THAT - Evidently the show cause notice u/s. 274 r.w.s 271 of the Act dated 24.12.2009 issued for Assessment Year 2007-08 is defective as it does not spell out the grounds on which the penalty is sought to be imposed The Hon ble Karnataka High Court in the case of CIT vs. SSA's Emerald Meadows 2016 (8) TMI 1145 - SC ORDER wherein following its own decision in the case of CIT vs Manjunatha Cotton and Ginning factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT took a view that imposing of penalty u/s 271(1)(c) of the Act is bad in law and invalid for the reason that the show cause notice u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. Show cause notice issued in the case on hand under section 271(1)(c) 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 under section 271(1)(c) does not strike out the inappropriate words .Imposition of penalty cannot be sustained. - Decided in favour of assessee.

Issues Involved:
1. Justification of penalty imposition under Section 271(1)(c) of the Income Tax Act, 1961.
2. Existence of mens rea in the levy of penalty.
3. Discretion of the officer in imposing the penalty.
4. Validity of the show cause notice under Section 274 r.w.s. 271 of the Act.
5. Compliance with the principles of natural justice.

Detailed Analysis:

1. Justification of Penalty Imposition under Section 271(1)(c):
The assessee firm, engaged in iron-ore extraction, filed its return for Assessment Year 2007-08, declaring an income of ?18,62,39,540/-. The Assessing Officer (AO) levied a penalty of ?11,38,000/- under Section 271(1)(c) of the Income Tax Act, 1961, which was upheld by the CIT(A). The assessee contended that the CIT(A) was not justified in upholding the AO's decision to levy the penalty.

2. Existence of Mens Rea in the Levy of Penalty:
The assessee argued that the CIT(A) incorrectly held that the existence of mens rea was sufficient for the imposition of the penalty under Section 271(1)(c). The judgment emphasized that mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities.

3. Discretion of the Officer in Imposing the Penalty:
The assessee claimed that the CIT(A) erroneously concluded that the officer had no discretion in the matter of penalty imposition, treating it as a statutory offense. The judgment clarified that the imposition of penalty is not automatic and requires the existence of conditions stipulated in Section 271(1)(c).

4. Validity of the Show Cause Notice under Section 274 r.w.s. 271:
A critical issue was the validity of the show cause notice issued under Section 274 r.w.s. 271. The notice did not specify whether the assessee was guilty of "furnishing inaccurate particulars of income" or "concealing particulars of income," and the AO did not strike out the irrelevant portion. The judgment referenced the Hon'ble Karnataka High Court's decision in the case of Manjunatha Cotton & Ginning Factory, which held that such an omission renders the notice invalid, as it does not satisfy the requirement of law and offends the principles of natural justice.

5. Compliance with the Principles of Natural Justice:
The judgment emphasized that the assessee must be made aware of the specific grounds on which the penalty is proposed. The practice of sending a printed form with all grounds mentioned in Section 271 does not meet legal requirements. The assessee should have the opportunity to contest the specific grounds of the penalty, ensuring compliance with the principles of natural justice.

Conclusion:
The show cause notice issued under Section 274 r.w.s. 271 was found defective as it did not specify the charge against the assessee. The Hon'ble Karnataka High Court's principles in the case of Manjunatha Cotton & Ginning Factory were applied, leading to the conclusion that the imposition of the penalty could not be sustained. The assessee's appeal for Assessment Year 2007-08 was allowed, and the penalty was directed to be cancelled. The judgment was pronounced in the open court on 21st August 2019.

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