2017 (12) TMI 1351 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - Held that - Initiation of penalty proceedings is invalid as irrelevant portion of a notice not having been struck off by the Assessing Officer. The show cause notice issued in the present case u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. See Jeetmal Choraria vs.- ACIT 2017 (12) TMI 883 - ITAT KOLKATA - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961.
2. Specificity of charges in the show-cause notice under section 274.
3. Judicial precedents and their applicability.

Detailed Analysis:

1. Validity of Penalty Proceedings under Section 271(1)(c):
The assessee, engaged in the business of trading mobile accessories, filed a return of income which was subsequently revised by the Assessing Officer (AO) leading to a higher assessed income. Penalty proceedings under section 271(1)(c) were initiated due to discrepancies such as undisclosed income and disallowed deductions. The AO imposed a penalty of ?1,19,191/-, which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].

2. Specificity of Charges in the Show-Cause Notice under Section 274:
The primary contention raised by the assessee was the defective nature of the show-cause notice issued under section 274. The notice failed to specify whether the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." The assessee argued that this lack of specificity rendered the penalty proceedings invalid. The assessee cited the Karnataka High Court's decision in CIT vs. SSA’s Emerald Meadows and the Bombay High Court's decision in CIT vs. Shri Samson Perinchery, which supported the view that such ambiguity in the notice invalidates the penalty.

3. Judicial Precedents and Their Applicability:
The Department relied on various judicial precedents to support the validity of the penalty proceedings despite the alleged defects in the show-cause notice. Key cases cited included:
- Dr. Syamal Baran Mondal vs. CIT: The Calcutta High Court held that specific terms and words are not mandated for recording satisfaction about concealment.
- Trishul Enterprises vs. DCIT: The ITAT Mumbai dismissed the contention regarding the failure to strike off irrelevant parts of the notice.
- Maharaj Garage & Company vs. CIT: The Bombay High Court held that the requirement for a specific charge in the notice is not necessary for granting a reasonable opportunity of being heard.

The Tribunal considered these precedents but found the Karnataka High Court's decision in Manjunatha Cotton & Ginning Factory more persuasive. This decision emphasized that the show-cause notice must clearly specify the charge to provide the assessee a fair opportunity to respond.

Tribunal's Conclusion:
The Tribunal observed that the issue at hand was similar to the case of Jeetmal Choraria vs. ACIT, where the penalty was canceled due to the defective show-cause notice. The Tribunal noted:
- The show-cause notice in the present case did not specify the charge against the assessee.
- The decisions of the Karnataka High Court and the Supreme Court supported the view that such a defect invalidates the penalty proceedings.
- The Tribunal chose to follow the Karnataka High Court's decision, favoring the assessee when two conflicting judicial views exist.

Final Judgment:
The Tribunal canceled the penalty imposed under section 271(1)(c) and confirmed by the CIT(A), allowing the appeal of the assessee. The order was pronounced in the open court on December 22, 2017.