2018 (4) TMI 800 - AT - Income Tax

Penalty u/s. 271(1)(c) - defective notice - 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 does not strike out the inappropriate words. In imposition of penalty cannot be sustained. The plea of 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.

Summary

Issues Involved:
1. Validity of penalty imposed under Section 271(1)(c) of the Income Tax Act.
2. Defective notice under Section 274 read with Section 271(1)(c) of the Income Tax Act.
3. Legal precedents and their applicability.

Detailed Analysis:

1. Validity of Penalty Imposed under Section 271(1)(c) of the Income Tax Act:
The appeal by the Assessee challenges the order of the Commissioner of Income Tax (Appeals), Kolkata, which confirmed the penalty of ?6,79,432/- imposed under Section 271(1)(c) of the Income Tax Act by the Assessing Officer (AO). The Assessee argued that the penalty was based on a defective notice and therefore not maintainable. The AO's penalty imposition was contested on the grounds of the notice being defective and not specifying the charge, i.e., whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income."

2. Defective Notice under Section 274 read with Section 271(1)(c) of the Income Tax Act:
The Assessee's representative (AR) contended that the statutory notice dated 28-03-2014 issued by the AO under Section 274 read with Section 271 was defective. The AR relied on the decision of the Karnataka High Court in the case of CIT vs SSA’s Emerald Meadows, which was upheld by the Supreme Court, asserting that the imposition of penalty on a defective notice is not maintainable. The AR argued that the notice did not specify the exact charge against the Assessee, thereby rendering it invalid.

3. Legal Precedents and Their Applicability:
The Department's Representative (DR) relied on various judgments to support the validity of the penalty, including:
- The Calcutta High Court in Dr. Syamal Baran Mondal vs CIT, which stated that specific terms and words are not mandated for recording satisfaction about the concealment of income.
- The ITAT Mumbai in Trishul Enterprises vs DCIT, which held that not striking off the relevant part of the notice does not invalidate it.
- The Bombay High Court in CIT vs Smt. Kaushalya, which opined that mere non-striking off specific limbs does not invalidate the notice.

However, the ITAT Kolkata referred to the decision of the Karnataka High Court in Manjunatha Cotton and Ginning Factory, which emphasized the necessity of specifying the charge in the show-cause notice under Section 274. The Tribunal preferred this view, following the principle that when there are two views on an issue, the one favoring the Assessee should be adopted, as established by the Supreme Court in the case of Vegetable Products Ltd.

The Tribunal found the notice issued to the Assessee defective as it did not specify whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income." This defect rendered the penalty proceedings invalid. The Tribunal also noted that the Supreme Court had dismissed the Revenue's Special Leave Petition against the Karnataka High Court's decision, reinforcing the precedent.

Conclusion:
The Tribunal concluded that the penalty imposed under Section 271(1)(c) of the Income Tax Act could not be sustained due to the defective notice issued under Section 274. Consequently, the penalty of ?6,79,432/- was canceled, and the Assessee's appeal was allowed. The order was pronounced in the open court on 13-04-2018.