2019 (9) TMI 373 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - as alleged show cause notice does not strike out the irrelevant portion viz., furnished inaccurate particulars of income or concealed particulars of such income - HELD THAT - Show cause notice u/s. 271(1)(c) dated 31.12.2008 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 2015 (11) TMI 1620 - KARNATAKA HIGH COURT wherein the Hon'ble Karnataka High Court 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) 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. - Decided in favour of assessee

Issues Involved:
1. Validity of the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961.
2. Adequacy of the show-cause notice under section 274 r.w.s. 271.
3. Compliance with the principles of natural justice.
4. Relevance of judicial precedents.

Detailed Analysis:

1. Validity of the Penalty Imposed under Section 271(1)(c) of the Income Tax Act, 1961:
The appeal was filed against the order of the CIT(A) confirming the AO's penalty imposition of ?14,04,106/- under section 271(1)(c). The penalty was initially levied due to alleged concealment or furnishing of inaccurate particulars of income. The Tribunal found that the show-cause notice did not specify whether the penalty was for "concealing particulars of income" or "furnishing inaccurate particulars of income," making the penalty order unsustainable.

2. Adequacy of the Show-Cause Notice under Section 274 r.w.s. 271:
The Tribunal scrutinized the show-cause notice and found it defective because it did not strike off the irrelevant portion, failing to specify the exact charge against the assessee. This defect was highlighted as per the precedent set by the Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (359 ITR 565), which mandates that the notice must clearly state the grounds for penalty.

3. Compliance with the Principles of Natural Justice:
The Tribunal emphasized that the principles of natural justice were violated as the assessee was not given a clear and specific charge to defend against. The vague notice did not allow the assessee to effectively contest the penalty, thus offending the principles of natural justice.

4. Relevance of Judicial Precedents:
The Tribunal relied heavily on the decision of the Hon'ble Karnataka High Court in Manjunatha Cotton & Ginning Factory, which laid down that a penalty notice must specify the exact charge. The Tribunal also referred to other cases where similar issues were adjudicated, such as SSA's Emerald Meadows, where the Supreme Court upheld the Karnataka High Court's decision that a vague notice invalidates the penalty.

Conclusion:
The Tribunal concluded that the penalty imposed under section 271(1)(c) could not be sustained due to the defective show-cause notice. The principles set by the Karnataka High Court in Manjunatha Cotton & Ginning Factory were applied, leading to the cancellation of the penalty. Consequently, the assessee's appeal was allowed, and the stay petition was dismissed as infructuous.

Final Order:
The appeal for Assessment Year 2012-13 was allowed, canceling the penalty imposed under section 271(1)(c). The stay petition was dismissed as it became infructuous following the cancellation of the penalty. The judgment was pronounced on 4th September 2019.

← Previous Next →