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2018 (2) TMI 302 - AT - Income TaxPenalty u/s 271(1)(c) - non mentioning of charge - non striking the inappropriate words - Held that - 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. The show cause notice u/s 274 does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. The plea of the ld. Counsel for the assessee which is based on the decisions referred to in the earlier part of this order has to be accepted. We therefore hold that imposition of penalty in the present case cannot be sustained and the same is directed to be cancelled. - Decided in favour of assessee
Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961. 2. Validity of the show cause notice issued under Section 274 of the Income Tax Act, 1961. 3. Specification of the charge in the show cause notice. Detailed Analysis: 1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961: The appeals concern the imposition of penalties by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961, for the Assessment Years (A.Y.) 2007-08 and 2012-13. The penalties were confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)], leading to the present appeals before the Tribunal. The penalties were imposed on the grounds that the assessee furnished inaccurate particulars of income, specifically related to unsecured loans from M/s. Paul Brothers, which were later admitted by the assessee as income from undisclosed sources. 2. Validity of the Show Cause Notice Issued under Section 274 of the Income Tax Act, 1961: The assessee's counsel argued that the show cause notice issued by the AO under Section 274 was defective as it did not specify whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. The AO failed to strike off the irrelevant portion in the notice, which led to ambiguity regarding the specific charge against the assessee. The counsel cited the decision of the Karnataka High Court in CIT vs. SSA’s Emerald Meadows, which held that such a defect renders the penalty proceedings invalid. The Supreme Court upheld this view by dismissing the Special Leave Petition (SLP) filed by the Revenue. 3. Specification of the Charge in the Show Cause Notice: The Tribunal considered various judicial pronouncements on the necessity of specifying the charge in the show cause notice. The Departmental Representative (DR) argued that it was not mandatory to specify the charge and relied on decisions from the Mumbai ITAT and the Bombay High Court, which held that a mistake in the notice's language or non-striking of the inaccurate portion does not invalidate the notice if the assessee was aware of the charges and given an opportunity to be heard. However, the Tribunal preferred the view of the Karnataka High Court in CIT vs. Manjunatha Cotton and Ginning Factory, which emphasized that a vague notice not specifying the charge shows non-application of mind by the AO and is thus invalid. The Tribunal noted that where there are divergent views, the view favorable to the assessee should be followed, as per settled legal principles. Conclusion: The Tribunal concluded that the show cause notice issued under Section 274 in the present case was indeed defective as it did not specify the charge against the assessee. Consequently, the imposition of penalties under Section 271(1)(c) could not be sustained. The Tribunal directed the cancellation of the penalties imposed for both assessment years. Result: The appeals of the assessee were allowed, and the penalties imposed under Section 271(1)(c) were cancelled. Order pronounced in the open Court on 02.02.2018.
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