2019 (2) TMI 235 - AT - Income Tax

Penalty u/s. 271(1)(c) - non specification of charge - defective notice - Held that - Notice issued by the Assessing Officer under Section 274 read with Section 271(l)(c) to be bad in law as it did not specify which limb of Section 271(l)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of COMMISSIONER OF INCOME TAX -VS- MANJUNATHA COTTON AND GINNING FACTORY (2013 (7) TMI 620 - KARNATAKA HIGH COURT). Also COMMISSIONER OF INCOME TAX & ANR. VERSUS M/S SSA S EMERALD MEADOWS 2016 (8) TMI 1145 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961 due to defective show cause notice.
2. Compliance with natural justice principles in penalty proceedings.

Detailed Analysis:

1. Validity of Penalty Proceedings Under Section 271(1)(c) Due to Defective Show Cause Notice:

The primary issue in this case revolves around the validity of the penalty proceedings initiated by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961. The appellant contested the penalty on the grounds that the show cause notice issued under Section 274 read with Section 271 of the Act was defective. Specifically, the notice did not specify whether the penalty was being imposed for "concealment of particulars of income" or for "furnishing inaccurate particulars of income." The notice contained both charges without striking out the irrelevant portion, thus failing to inform the assessee of the specific charge against them.

The appellant relied on 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 notice must clearly specify the charge. The Hon'ble Supreme Court also upheld this view by dismissing the Special Leave Petition (SLP) filed by the revenue against the Karnataka High Court's decision. Additionally, the appellant cited the Hon'ble Bombay High Court's decision in CIT vs. Shri Samson Perinchery and the ITAT Kolkata's decision in Suvaprasanna Bhattacharya vs. ACIT, which supported the same principle.

The Tribunal noted that the show cause notice issued in the present case did not specify the charge against the assessee, thereby rendering the penalty proceedings invalid. The Tribunal referenced the Hon'ble Calcutta High Court's decision in Pr. CIT-19 vs. Dr. Murari Mohan Koley, which upheld the principle that a defective show cause notice cannot sustain a penalty.

2. Compliance with Natural Justice Principles in Penalty Proceedings:

The revenue's representative (DR) opposed the appellant's submission by citing various case laws, including the Hon'ble Calcutta High Court's decision in Dr. Syamal Baran Mondal vs. CIT, which suggested that specific terms and words were not mandatory for recording satisfaction about concealment of income. However, the Tribunal distinguished this case by noting that it dealt with the recording of satisfaction and not the specific charge in the show cause notice.

The DR also cited decisions from the Mumbai ITAT and the Hon'ble Bombay High Court, such as CIT vs. Kaushalya and Earthmoving Equipment Service Corporation vs. DCIT, which held that a mistake in the notice language or non-striking of the inaccurate portion does not invalidate the notice. However, the Tribunal observed that these decisions were not applicable as they did not address the specific issue of the charge in the show cause notice.

The Tribunal emphasized that the principle of natural justice requires the assessee to be informed of the specific charge they need to defend against. The Tribunal preferred the view expressed by the Hon'ble Karnataka High Court in Manjunatha Cotton & Ginning Factory, which favored the assessee when two views were available.

Conclusion:

The Tribunal concluded that the penalty imposed by the AO and confirmed by the CIT(A) could not be sustained due to the defective show cause notice, which failed to specify the charge against the assessee. Consequently, the penalty was dismissed, and the appeal was partly allowed. The last ground of appeal, being general in nature, required no adjudication and was dismissed. The order was pronounced in the open court on January 25, 2019.