2020 (4) TMI 284 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - absence of any specific mention in the show-cause notice issued u/s 274 as to whether the asseessee is guilty of having furnished inaccurate particulars of income or of having concealed particulars of such income - HELD THAT - Notice issued under section 271(1)(c) without specifying which of the two contraventions, the assessee is guilty of was defective and the penalty imposed in pursuance of such defective notice was not sustainable. See BIJOY KUMAR AGARWAL 2019 (6) TMI 721 - CALCUTTA HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the penalty notice issued under Section 274 of the Income Tax Act, 1961.
3. Applicability of judicial precedents to the present case.

Issue-wise Detailed Analysis:

1. Legality of the initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961:
The assessee filed a return of income declaring ?32,35,337/-, but the Assessing Officer (AO) determined the total income at ?63,91,337/- after making an addition of ?28,00,000/- as unexplained cash deposits. The AO issued a show-cause notice for penalty under Section 271(1)(c) due to the addition of ?28,00,000/-. The assessee did not respond, leading the AO to impose a penalty of ?8,65,200/-. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed this penalty, prompting the assessee to appeal to the Tribunal.

2. Validity of the penalty notice issued under Section 274 of the Income Tax Act, 1961:
The core argument raised by the assessee was that the penalty proceedings were invalid due to the lack of specific mention in the show-cause notice under Section 274. The notice did not clearly state whether the penalty was for "furnishing inaccurate particulars of income" or for "concealing particulars of such income." The Tribunal observed that the AO did not strike off the irrelevant portion in the notice, making it ambiguous.

3. Applicability of judicial precedents to the present case:
The Tribunal referenced the decision in Suvaprasanna Bhattacharya vs. ACIT, where a similar issue was adjudicated. The Tribunal, in that case, relied on the Karnataka High Court decision in CIT & Another vs. Manjunatha Cotton & Ginning Factory, which emphasized that a penalty notice must specifically state the grounds for the penalty. The Karnataka High Court laid down that vague notices offend principles of natural justice and are thus invalid. The Tribunal also noted the Calcutta High Court's decision in Principal CIT vs. Bijoy Kr. Agarwal, which upheld the cancellation of a penalty due to a defective notice under Section 271(1)(c).

The Tribunal concluded that the penalty notice in the present case was defective as it did not specify the grounds for the penalty, making the penalty order invalid. This conclusion was supported by the principles laid down in the cited judicial precedents.

Conclusion:
The Tribunal allowed the appeal of the assessee, canceling the penalty imposed under Section 271(1)(c) due to the defective penalty notice under Section 274, which did not specify whether the penalty was for "furnishing inaccurate particulars of income" or "concealing particulars of such income." The decision was based on established judicial precedents emphasizing the need for clear and specific penalty notices to uphold principles of natural justice.