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2020 (6) TMI 402 - AT - Income TaxPenalty u/s 271(1)(c) - Disallowance of claim for long-term capital gain arising from the sale of shares of Jackson Investment Limited by treating the same as bogus - as per assessee no specific mention in the show-cause notice issued under section 274 for the year under consideration by the authorities below as to whether the assessee 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 and M/S MANJUNATHA COTTON AND GINNING FACTORY OTHS., M/S. V.S. LAD SONS, 2013 (7) TMI 620 - KARNATAKA HIGH COURT - Decided in favour of assessee.
Issues Involved:
1. Validity of the penalty proceedings initiated under section 271(1)(c) of the Income Tax Act, 1961. 2. Specificity of the show-cause notice issued under section 274 of the Income Tax Act, 1961. Detailed Analysis: 1. Validity of the Penalty Proceedings Initiated Under Section 271(1)(c): The appeal filed by the assessee challenges the confirmation of a penalty of ?2,79,630/- imposed by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act, 1961. The AO had determined the total income of the assessee at ?12,72,802/- after making an addition of ?9,04,963/- by disallowing the claim for long-term capital gain from the sale of shares, treating it as bogus. The penalty was imposed as the explanation offered by the assessee was not found acceptable by the AO. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the penalty in an ex-parte order dated 14.01.2020. 2. Specificity of the Show-Cause Notice Issued Under Section 274: A new preliminary issue was raised by the assessee's counsel during the hearing, challenging the initiation of penalty proceedings. The argument was based on the absence of a specific mention in the show-cause notice under section 274 as to whether the penalty was for "furnishing inaccurate particulars of income" or "concealing particulars of such income." The show-cause notice did not strike off the irrelevant portion, leading to ambiguity. The Tribunal referred to a similar issue in the case of Suvaprasanna Bhattacharya vs. ACIT, where the penalty imposed under section 271(1)(c) was held invalid by relying on the decision of the Karnataka High Court in CIT & Another vs. Manjunatha Cotton & Ginning Factory. The Karnataka High Court emphasized that the notice under section 274 should specifically state the grounds for imposing the penalty. A standard printed form without striking off the irrelevant clauses would not satisfy the legal requirement, leading to a violation of the principles of natural justice. The Tribunal noted that the decision of the Karnataka High Court in Manjunatha Cotton & Ginning Factory laid down several principles, including the necessity for the show-cause notice to specify the grounds for penalty and that initiating penalty proceedings on one ground and imposing it on another is bad in law. The Tribunal also referred to the Calcutta High Court's decision in Principal CIT vs. Bijoy Kr. Agarwal, which upheld the Tribunal's decision to cancel the penalty due to a defective notice. Given the judicial precedents, the Tribunal concluded that the penalty proceedings initiated without specifying the grounds were invalid. Therefore, the penalty imposed under section 271(1)(c) was canceled, and the appeal of the assessee was allowed. Conclusion: The Tribunal allowed the appeal of the assessee, canceling the penalty imposed under section 271(1)(c) due to the defective show-cause notice, which failed to 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 necessity for specificity in penalty notices to uphold the principles of natural justice.
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