2022 (4) TMI 35 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice u/s 274 - non specification of clear charge - HELD THAT - Now when as per the settled position of law the two defaults, viz. concealment of income and furnishing of inaccurate particulars of income are separate and distinct defaults, therefore, in case the A.O sought to have proceeded against the assessee for either of the said defaults, then, it was incumbent on his part to have clearly specified his said intention in the Show cause notice, which we find he had failed to do in the case before us. The aforesaid failure on the part of the assessee cannot be dubbed as merely a technical default, because the same had clearly divested the assessee of its statutory right of being heard and defend its case. In the present case the 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 it by specifying the default in the SCN , dated 30.03.2013, had left the assessee guessing of the default for which it was being proceeded against. In the backdrop of our aforesaid observations, we are of a strong conviction, that as the A.O had clearly failed to discharge his statutory obligation of fairly putting the assessee company to notice as regards the default for which it was being proceeded against, therefore, the penalty under Sec. 271(1)(c) imposed by him being in clear violation of the mandate of Sec. 274(1) of the Act cannot be sustained. We, thus, for the aforesaid reasons not being able to persuade ourselves to subscribe to the imposition of penalty by the A.O, therefore, set-aside the order of the CIT(A) who had upheld the same. - Appeal of assessee allowed.

Issues Involved:
1. Jurisdiction of the Assessing Officer in imposing penalty under Section 271(1)(c) of the Income-tax Act, 1961.
2. Validity of the Show Cause Notice issued under Section 274 read with Section 271(1)(c).
3. Specificity of the charge in the Show Cause Notice - whether for 'concealment of income' or 'furnishing of inaccurate particulars of income'.
4. Application of judicial precedents regarding the clarity required in penalty notices.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer in Imposing Penalty:
The assessee contended that the Assessing Officer (A.O.) wrongly assumed jurisdiction to impose a penalty under Section 271(1)(c) of the Income-tax Act, 1961. The argument was based on the claim that the A.O. failed to specify the exact charge in the Show Cause Notice (SCN), thus depriving the assessee of a fair opportunity to defend itself. The Tribunal agreed with the assessee, stating that the A.O. did not clearly indicate whether the penalty was for 'concealment of income' or 'furnishing inaccurate particulars of income', both of which are distinct charges under the Act.

2. Validity of the Show Cause Notice:
The Tribunal scrutinized the SCN issued on 30.03.2013 and found that it lacked specificity regarding the default for which the penalty was sought to be imposed. The Tribunal observed that the SCN did not strike off the irrelevant default, leading to ambiguity. This lack of clarity was deemed a significant flaw, rendering the SCN invalid. The Tribunal emphasized that the SCN must clearly communicate the specific charge to the assessee to fulfill the statutory requirement of providing a reasonable opportunity to be heard.

3. Specificity of the Charge in the Show Cause Notice:
The Tribunal reiterated the necessity for the A.O. to specify whether the penalty was for 'concealment of income' or 'furnishing inaccurate particulars of income'. Citing judicial precedents, the Tribunal noted that these two charges are distinct and operate in separate fields. The failure to specify the charge in the SCN was seen as a non-application of mind by the A.O., which undermines the purpose of the statutory notice and the principles of natural justice.

4. Application of Judicial Precedents:
The Tribunal referred to several judicial pronouncements to support its decision. Key cases cited included CIT vs. Manjunath Cotton & Ginning Factory, CIT vs. SSA’s Emerald Meadows, and Dilip N. Shroff vs. Jt. CIT. These cases established that the failure to specify the charge in the SCN reflects non-application of mind and violates the principles of natural justice, thereby invalidating the penalty proceedings. The Tribunal also noted that the Supreme Court had dismissed the Special Leave Petition against the Karnataka High Court's decision in SSA’s Emerald Meadows, reinforcing the requirement for clarity in SCNs.

Conclusion:
The Tribunal concluded that the A.O.'s failure to specify the exact charge in the SCN invalidated the penalty proceedings under Section 271(1)(c). Consequently, the penalty of ?6,92,757/- imposed on the assessee was quashed. The Tribunal set aside the order of the CIT(A) and allowed the appeal, emphasizing that the statutory obligation to clearly specify the charge in the SCN is not a mere formality but a crucial requirement to uphold the principles of natural justice.

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