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2020 (2) TMI 783 - AT - Income TaxPenalty u/s 271(1)(c) - defective notice - as alleged irrelevant default in the Show cause notice was not struck off by the A.O - addition on account of Unexplained investment in the hands of the assessee and addition of perquisite of rent free accommodation made in the hands of the assessee - HELD THAT - Failure on the part of the A.O to clearly put the assessee to notice as regards the default for which penalty under Sec. 271(1)(c) was sought to be imposed on him by failing to strike off the irrelevant default in the SCN , dated 28.12.2010, had left the assessee guessing of the default for which he was being proceeded against for. We thus in the backdrop of our aforesaid observations are of a strong conviction that as the A.O had clearly failed to discharge his statutory obligation of fairly putting the assessee to notice as regards the default for which he was being proceeded against, therefore, the penalty under Sec. 271(1)(c) imposed is clear violation of the mandate of Sec. 274(1) of the Act cannot be sustained. - Decided in favour of assessee.
Issues Involved:
1. Confirmation of penalty u/s 271(1)(c) by CIT(A). 2. Validity of the penalty order u/s 271(1)(c) due to lack of proper satisfaction and specific charge by the Assessing Officer (AO). Detailed Analysis: 1. Confirmation of Penalty u/s 271(1)(c) by CIT(A): The assessee filed an appeal against the order of CIT(A)-1, Amritsar, which confirmed the penalty levied by the AO under section 271(1)(c) of the Income Tax Act, 1961. The penalty was initially imposed on an addition of ?4,94,415 for 'Unexplained investment' and ?16,745 for 'perquisite of rent-free accommodation'. The CIT(A) later reduced the penalty to ?1,17,479. The assessee contended that the CIT(A) erred in confirming the penalty as the source of all bank deposits was fully explained, and there was no difference of ?1,17,479. The assessee also argued that the addition was based on a bona fide explanation, and hence, no penalty should be levied. 2. Validity of the Penalty Order u/s 271(1)(c): The assessee raised additional grounds challenging the legality of the penalty order, arguing that the AO did not record proper satisfaction in the assessment order or the notice issued under section 271(1)(c) read with section 274. The assessee claimed that the AO failed to strike off the irrelevant default in the 'Show Cause' notice, thus not specifying whether the penalty was for 'concealment of income' or 'furnishing inaccurate particulars of income'. The tribunal admitted these additional grounds based on the judgment of the Hon'ble Supreme Court in National Thermal Power Company Limited Vs. CIT (1998) 229 ITR 383 (SC). Upon review, the tribunal observed that the AO did not strike off the irrelevant default in the 'Show Cause' notice, which is a mandatory requirement. The tribunal cited the Hon'ble Supreme Court's judgments in Dilip & Shroff Vs. Jt. CIT (2007) and T. Ashok Pai Vs. CIT (2007), which emphasized the need for the AO to clearly specify the charge in the notice. The tribunal also referred to the Hon'ble High Court of Karnataka's judgment in CIT Vs. SSA’s Emerald Meadows, which held that a notice not specifying the limb of section 271(1)(c) is bad in law. This view was upheld by the Hon'ble Supreme Court when it dismissed the SLP filed by the revenue. The tribunal concluded that the AO's failure to specify the charge in the 'Show Cause' notice indicated non-application of mind and violated the principles of natural justice. Consequently, the penalty order was deemed invalid and void ab initio. Conclusion: The tribunal quashed the penalty of ?74,310 imposed under section 271(1)(c) due to the AO's failure to specify the charge in the 'Show Cause' notice, thereby violating the mandate of section 274(1). The appeal of the assessee was allowed, and the penalty was set aside. The tribunal refrained from addressing the merits of the case as the penalty was quashed for lack of jurisdiction.
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