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2018 (4) TMI 1124 - AT - Income TaxPenalty u/s 271(1)(c) - addition u/s 41 - on specification of charge - defective notice - Held that - 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. Thus imposition of penalty cannot be sustained. See Jeetmal Choraria Versus A.C.I.T. 2017 (12) TMI 883 - ITAT, KOLKATA - Decided in favour of assessee.
Issues Involved:
1. Validity of the penalty notice under section 271(1)(c) of the Income Tax Act, 1961. 2. Whether the penalty imposed under section 271(1)(c) can be sustained if the penalty notice is defective. Detailed Analysis: 1. Validity of the penalty notice under section 271(1)(c) of the Income Tax Act, 1961: The primary issue in this case is whether the penalty notice issued by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act, 1961, is valid. The assessee argued that the penalty notice was defective because it did not clearly specify whether the penalty was for "furnishing inaccurate particulars of income" or "concealment of particulars of income." This argument was supported by the precedent set in the case of Jeetmal Choraria vs. ACIT, where the ITAT held that a penalty notice must clearly state the specific charge against the assessee. The assessee's counsel pointed out that the show cause notice issued under section 274 of the Act did not contain the specific charge, and the AO did not strike out the irrelevant portion, making the notice ambiguous. The counsel cited several cases, including CIT vs. SSA’s Emerald Meadows and CIT vs. Manjunatha Cotton and Ginning Factory, where courts held that such defects render the penalty proceedings invalid. 2. Whether the penalty imposed under section 271(1)(c) can be sustained if the penalty notice is defective: The Tribunal examined whether the penalty imposed under section 271(1)(c) could be sustained given the defective notice. The Tribunal referred to various judicial precedents, including decisions by the Hon'ble Karnataka High Court and the Hon'ble Bombay High Court. The Tribunal noted that the Karnataka High Court had consistently held that a defective show cause notice that does not specify the charge against the assessee invalidates the penalty proceedings. This view was also upheld by the Hon'ble Supreme Court. The Tribunal acknowledged that there were contrary views from the Hon'ble Bombay High Court and the ITAT Mumbai, which held that a mere mistake in the language or non-striking of the inaccurate portion does not invalidate the notice. However, the Tribunal chose to follow the view favorable to the assessee, as per the legal principle that when two views are available, the one favorable to the assessee should be followed. The Tribunal concluded that the penalty notice in this case was indeed defective as it did not specify the charge against the assessee. Therefore, the imposition of penalty under section 271(1)(c) could not be sustained. Consequently, the penalty imposed by the AO was deleted, and the appeal filed by the assessee was allowed. Conclusion: The Tribunal allowed the appeal filed by the assessee, holding that the defective penalty notice under section 271(1)(c) invalidated the penalty proceedings. The Tribunal followed the precedent set by the Hon'ble Karnataka High Court and other supportive judgments, emphasizing the necessity of a clear and specific charge in the penalty notice. The penalty imposed by the AO was directed to be canceled.
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