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2018 (3) TMI 81 - AT - Income TaxPenalty u/s 271(1)(c) - disallowance of prior period expenditure on electricity charges to DVC - defective notice - 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 of the Act does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. See Jeetmal Choraria Versus A.C.I.T., Circle-43 2017 (12) TMI 883 - ITAT, KOLKATA - Decided in favour of assessee.
Issues Involved:
1. Validity of Penalty under Section 271(1)(c) of the Income-tax Act, 1961. 2. Specificity of Charge in Show Cause Notice under Section 274 of the Act. 3. Judicial Precedents and Interpretations. Issue-wise Detailed Analysis: 1. Validity of Penalty under Section 271(1)(c) of the Income-tax Act, 1961: The appeal filed by the revenue challenges the deletion of a penalty amounting to ?50,52,214/- imposed by the AO under Section 271(1)(c) of the Income-tax Act, 1961. The penalty was initially imposed because the assessee had debited a sum of ?1,48,64,119/- on account of provision of electricity charges for AY 2006-07 and AY 2007-08, which the AO deemed as prior period expenditure not related to the current year. Consequently, the AO issued a notice under Section 271(1)(c)/274 and imposed the penalty. 2. Specificity of Charge in Show Cause Notice under Section 274 of the Act: The primary contention raised by the assessee was that the show cause notice issued under Section 274 did not specify whether the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." The notice used generic language, stating: "it appears that you have concealed the particulars or furnished inaccurate particulars of such income." This lack of specificity was argued to render the penalty proceedings invalid. 3. Judicial Precedents and Interpretations: The assessee's counsel referenced several judicial precedents to support their argument: - CIT vs. SSA’s Emerald Meadows: The Karnataka High Court held that a penalty under Section 271(1)(c) is invalid if the show cause notice does not specify the charge. - CIT vs. Manjunatha Cotton and Ginning Factory: The Karnataka High Court emphasized that the AO must clearly state the specific charge in the notice. - CIT vs. Shri Samson Perinchery: The Bombay High Court followed the Karnataka High Court's decision, invalidating penalties based on defective show cause notices. - Suvaprasanna Bhattacharya vs. ACIT: The ITAT followed the same principle regarding the specificity of charges in show cause notices. The revenue's counsel opposed this by citing various case laws: - Dr. Syamal Baran Mondal vs. CIT: The Calcutta High Court held that specific terms and words are not mandated for recording satisfaction about concealment. - CIT vs. Kaushalya: The Bombay High Court ruled that the issuance of notice is an administrative device, and mere mistakes in language do not invalidate the notice. - Earthmoving Equipment Service Corporation vs. DCIT: The ITAT Mumbai did not follow the Karnataka High Court's decision, emphasizing that the defect in the notice does not invalidate penalty proceedings if the charge is discernible from the assessment order. The Tribunal, however, preferred to follow the Karnataka High Court's decision in Manjunatha Cotton and Ginning Factory, stating that where two views exist, the one favorable to the assessee should be followed. The Tribunal concluded that since the show cause notice did not specify the charge, the imposition of the penalty could not be sustained. Conclusion: The Tribunal upheld the CIT(A)'s decision to delete the penalty, dismissing the revenue's appeal. The judgment emphasized the necessity for specific charges in show cause notices under Section 274 of the Act, aligning with the Karnataka High Court's interpretation. The penalty was thus deemed invalid due to the defective notice, and the appeal of the revenue was dismissed.
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