2018 (3) TMI 788 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - non specification of charge - 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. Also when the quantum is deleted, there cannot be any levy of penalty u/s 271(1)(c ) of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Justification of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the show cause notice under section 274 of the Act.
3. Applicability of clause (c) of Explanation-4 to section 271(1) of the Act.

Issue-wise Detailed Analysis:

1. Justification of Penalty under Section 271(1)(c):
The Assessee, a Non-Banking Finance Company (NBFC), did not declare interest income of ?19,00,000 in its return for the Assessment Year 2004-05, leading to the reopening of the case under section 147 of the Act. The Assessing Officer (AO) added the interest income and initiated penalty proceedings under section 271(1)(c). The Assessee argued that the non-recognition of interest income was in accordance with RBI prudential norms. However, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the penalty but reduced it to ?6,65,000. The Tribunal found that the quantum addition had been deleted by placing reliance on the decision of the Hon’ble Delhi High Court in CIT vs Vasisth Chay Vyapar, which was approved by the Hon’ble Supreme Court. Consequently, when the quantum is deleted, there cannot be any levy of penalty under section 271(1)(c).

2. Validity of the Show Cause Notice under Section 274:
The Assessee's representative argued that the show cause notice issued under section 274 did not specify whether the penalty proceedings were for concealing particulars of income or furnishing inaccurate particulars of income. This was supported by the Hon’ble Karnataka High Court's decision in CIT vs. SSA’s Emerald Meadows, which held that such a notice is invalid. The Tribunal agreed, noting that the notice did not strike out the inappropriate words, rendering the imposition of penalty unsustainable.

3. Applicability of Clause (c) of Explanation-4 to Section 271(1):
The Assessee contended that the tax allegedly sought to be evaded should be considered NIL under clause (c) of Explanation-4 to section 271(1) of the Act. However, the Tribunal did not delve deeply into this argument as the penalty was already deemed unsustainable due to the invalid show cause notice and the deletion of the quantum addition.

Conclusion:
The Tribunal concluded that the imposition of penalty under section 271(1)(c) could not be sustained due to the invalidity of the show cause notice under section 274 and the deletion of the quantum addition. Consequently, the penalty levied by the AO was directed to be cancelled, and the appeals of the Assessee were allowed.