2021 (11) TMI 325 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice u/s 274 - whether for concealment of income or for furnishing of inaccurate particulars of income? - HELD THAT - The notice has specified both charges i.e. concealment of income and furnishing of inaccurate particulars of income and has not specified the charge for which action has been taken against assessee. The non specific nature of notice indicates non application of mind by AO. It is a settled position of law that if notice u/s 274 read with 271(1)(c) is not specific about the charge or limb under which penalty is being levied u/s 271(1)(c) of the Act, then any penalty levied on the basis of such notice is bad in law and liable to be deleted. The law mandates that the authority, who is proposing to impose penalty, shall be certain as to what basis penalty is being levied and notice must reflect that specific reason so that assessee, to whom such notice is given, can well prepare himself regarding defence, which he likes to take to support his case. This is even enshrined in the principles of natural justice and as has been upheld by Hon'ble Apex Court and other High Courts. In the present cases, unlike in the case of Sundram Finance Ltd 2018 (5) TMI 259 - MADRAS HIGH COURT the assessee has taken this argument before learned CIT(A) and before us also whereas in Sundram Finance Ltd., the issue was raised for the first time before Hon'ble Supreme Court therefore, this case law is distinguishable from the facts of the present cases and therefore, is not applicable

Issues Involved:
1. Deletion of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the notice issued under section 274 read with section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Deletion of Penalty under Section 271(1)(c) of the Income Tax Act, 1961
The Revenue challenged the deletion of a penalty amounting to ?1,00,00,000/- levied under section 271(1)(c) of the Income Tax Act, 1961, by CIT(A). The Revenue argued that the CIT(A) erred in law and on facts by deleting the penalty despite the additions made by the AO being upheld in appellate proceedings. The Revenue relied on the Supreme Court's decision in Union of India vs. Dharmendra Textile Processors (2008) and the Madras High Court's decision in Sundaram Finance Ltd. vs. Assistant Commissioner of Income Tax, which held that mens rea is not an essential element for imposing a penalty for breach of civil obligations or liabilities.

Issue 2: Validity of Notice under Section 274 Read with Section 271(1)(c)
The assessee's counsel argued that the show cause notice for penalty under section 274 read with section 271(1)(c) was not specific about the charge, i.e., whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. The counsel cited several judicial precedents, including PCIT vs. Sahara India Life Insurance Co. Ltd., Pr.CIT vs. Goa Coastal Resorts & Recreation Pvt. Ltd., and CIT vs. SSA’s Emerald Meadows, to argue that a non-specific notice is bad in law and any penalty based on such notice is liable to be deleted.

The Tribunal examined the case records and found that the penalty notices were indeed not specific. The notices mentioned both concealment of income and furnishing inaccurate particulars of income without specifying the exact charge. This non-specific nature of the notice indicated non-application of mind by the Assessing Officer. The Tribunal noted that the law mandates the authority proposing to impose a penalty to be certain about the basis for the penalty and that the notice must reflect that specific reason. This ensures that the assessee can prepare an adequate defense, which is a principle enshrined in natural justice.

The Tribunal relied on the Supreme Court's decision in CIT vs. SSA’s Emerald Meadows and the Karnataka High Court's decision in CIT vs. Manjunath Cotton & Ginning Factory, which held that a non-specific notice under section 274 read with section 271(1)(c) is bad in law. The Tribunal also considered other judicial precedents, including Meherjee Cassinath Holdings Pvt. Ltd vs. ACIT and Chandra Prakash Bubna vs. Income Tax Officer, which supported the view that a non-specific penalty notice is invalid.

The Tribunal distinguished the present case from the Madras High Court's decision in Sundaram Finance Ltd., noting that in the latter case, the issue of notice validity was raised for the first time after ten years, whereas in the present case, it was raised before the lower appellate authority and the Tribunal.

Conclusion
The Tribunal concluded that the show cause notices issued were non-specific and thus invalid, making the penalties based on such notices illegal and bad in law. Consequently, the Tribunal upheld the CIT(A)'s order deleting the penalties. The appeals filed by the Revenue were dismissed, and the cross-objections filed by the assessee were deemed infructuous and also dismissed.

Order Pronounced in the Open Court on 02/11/2021

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