2018 (3) TMI 1400 - AT - Income Tax

Penalty u/s 271(1)(c) - Non specification of charge - defective show cause 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. 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.
3. Specificity of charges in the show cause notice regarding concealment of income or furnishing inaccurate particulars of income.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The primary issue in this appeal was the imposition of penalty under Section 271(1)(c) of the Income Tax Act by the Principal CIT. The Assessee, a company, had claimed a long-term loss on the redemption/sale of mutual funds amounting to ?2,22,763, which was allowed by the AO in the assessment order dated 22.01.2014. However, the Principal CIT, exercising powers under Section 263, issued a show cause notice regarding this claim, stating that the long-term loss was exempt under Section 10(38) and should not have been considered in the computation of taxable income. The Assessee admitted the mistake, and the Principal CIT revised the assessment order, enhancing the income by ?2,22,763 and initiated penalty proceedings for the excessive claim of deduction.

2. Validity of the Show Cause Notice Issued under Section 274 of the Income Tax Act:
The Assessee contended that the show cause notice issued under Section 274 before imposing the penalty did not specify the exact charge against the Assessee, i.e., whether it was for concealment of particulars of income or for furnishing inaccurate particulars of income. The Tribunal noted that the notice did not strike out the irrelevant portion, thereby failing to specify the charge clearly. This lack of specificity rendered the notice invalid, as it did not inform the Assessee of the exact nature of the alleged default.

3. Specificity of Charges in the Show Cause Notice:
The Assessee's counsel referred to several judicial precedents, including the Hon’ble Karnataka High Court's decision in CIT vs. SSA’s Emerald Meadows and CIT vs. Manjunatha Cotton and Ginning Factory, which held that a penalty under Section 271(1)(c) is invalid if the show cause notice does not specify whether the penalty is for concealment of income or furnishing inaccurate particulars of income. The Tribunal also considered similar views from the Hon’ble Bombay High Court in CIT vs. Shri Samson Perinchery and ITAT Kolkata's decision in Suvaprasanna Bhattacharya vs. ACIT. The Tribunal concluded that the failure to specify the charge in the notice indicated a lack of application of mind by the Principal CIT, thereby invalidating the penalty proceedings.

Conclusion:
The Tribunal, after considering the rival contentions and judicial precedents, held that the imposition of penalty under Section 271(1)(c) could not be sustained due to the defective show cause notice issued under Section 274. The notice's failure to specify the charge against the Assessee rendered it invalid, leading to the cancellation of the penalty. Consequently, the appeal of the Assessee was allowed.

Order:
The appeal of the Assessee was allowed, and the penalty imposed under Section 271(1)(c) was directed to be cancelled. The order was pronounced in the Court on 01.03.2018.

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