2021 (10) TMI 228 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice u/s 274 - non specification of charge - addition by invoking the provision u/s 43CA - Assessee argued as absence of any specific mention in the show-cause notice issued under section 274 of the Act 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 AMRIT FOODS VERSUS COMMISSIONER OF CENTRAL EXCISE, UP. 2005 (10) TMI 96 - SUPREME COURT - Decided in favour of assessee.

Summary

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 under section 274 of the Income Tax Act, 1961.
3. Applicability of judicial precedents on penalty proceedings.

Detailed Analysis:

1. Validity of the Penalty Proceedings Initiated under Section 271(1)(c):
The primary issue in this case is the validity of the penalty proceedings initiated under section 271(1)(c) of the Income Tax Act, 1961. The assessee firm, engaged in the business of construction, filed a return declaring an income of ?38,97,950/-. The Assessing Officer (AO) determined the total income at ?53,81,370/- after making an addition of ?14,83,420/- under section 43CA. The AO imposed a penalty of ?4,58,376/- under section 271(1)(c) for the alleged concealment of income. The penalty was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)], and the assessee appealed to the ITAT.

2. Specificity of the Show-Cause Notice under Section 274:
The assessee challenged the initiation of penalty proceedings on the grounds that the show-cause notice under section 274 did not specify whether the penalty was for "furnishing inaccurate particulars of income" or "concealing particulars of such income." The ITAT observed that the AO had not struck off the irrelevant portion in the notice, making it unclear which specific contravention the assessee was being penalized for. This ambiguity was deemed to violate the principles of natural justice, as it did not give the assessee a fair opportunity to contest the penalty.

3. Applicability of Judicial Precedents on Penalty Proceedings:
The ITAT referred to several judicial precedents to support its decision. Notably, the Tribunal cited the case of Suvaprasanna Bhattacharya vs. ACIT, where a similar issue was considered, and the penalty under section 271(1)(c) was held invalid due to the defective notice. The Tribunal also relied on the decision of the Hon’ble Karnataka High Court in CIT & Another vs. Manjunatha Cotton & Ginning Factory, which laid down that the notice under section 274 must specifically state whether the penalty is for concealment of income or furnishing inaccurate particulars. The Karnataka High Court emphasized that a vague notice offends the principles of natural justice.

Furthermore, the ITAT noted that the Hon’ble Calcutta High Court, in the case of Principal CIT vs. Bijoy Kr. Agarwal, upheld the Tribunal’s decision to cancel the penalty imposed under section 271(1)(c) due to a defective notice. The Calcutta High Court reiterated that the notice must clearly specify the grounds for the penalty, aligning with the principles established in the Manjunatha Cotton & Ginning Factory case.

Conclusion:
Based on the judicial precedents and the specific facts of the case, the ITAT concluded that the penalty proceedings initiated under section 271(1)(c) were invalid due to the defective show-cause notice under section 274. The Tribunal held that the penalty imposed on the assessee could not be sustained and thereby canceled the penalty. The appeal of the assessee was allowed, and the order was pronounced in the open court on 1st October 2021.