2019 (3) TMI 328 - AT - Income Tax

Penalty u/s. 271(1)(c) - defective notice - validity of show cause notice as not struck off the irrelevant portion as to whether the charge against the Assessee is concealing particulars of income or furnishing of inaccurate particulars of income - Sale of the plots not declared in return of income filed prior to search - Some year even return was not filed - After search, in response to notice u/s.153C sale of plots was disclosed in returns - whether additions made to the income declared in the returns filed for the aforesaid AYs. u/s.153C would by itself be sufficient to impose penalty u/s.271(1)(c) - 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. In these circumstances, we are of the view that imposition of penalty cannot be sustained. As decided in COMMISSIONER OF INCOME TAX, BANGALORE AND THE INCOME TAX OFFICER, WARD-6 (3) , BANGALORE VERSUS M/S SSA S EMERALD MEADOWS 2015 (11) TMI 1620 - KARNATAKA HIGH COURT as relying on M/S MANJUNATHA COTTON AND GINNING FACTORY & OTHS., M/S. V.S. LAD & SONS, 2013 (7) TMI 620 - KARNATAKA HIGH COURT imposing of penalty u/s 271(1)(c) of the Act is bad in law and invalid for the reason that the show cause notice u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income.

Issues Involved:
1. Legality of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the show cause notice issued under Section 274 of the Act for penalty proceedings.

Detailed Analysis:

1. Legality of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961:

The Assessee sold plots of land during the relevant assessment years but did not file returns for some years until a search operation revealed undisclosed income. Based on seized documents, proceedings under Section 153C of the Act were initiated, and the Assessee disclosed the income from the sale of plots in the returns filed in response. The Assessing Officer (AO) imposed penalties under Section 271(1)(c) on the grounds that the Assessee would not have declared the income without the search operation. The AO's stance was that mere declaration of income in response to Section 153C notice did not provide immunity from penalties. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, confirming that the search was the reason for the income declaration.

2. Validity of the show cause notice issued under Section 274 of the Act for penalty proceedings:

The Assessee contended that the penalty notice issued under Section 274 was not in accordance with the law as it did not specify whether the penalty was for "furnishing inaccurate particulars of income" or "concealing particulars of such income." The Tribunal admitted this additional ground, citing the Supreme Court's decision in NTPC 229 ITR 383 (SC), which allows legal questions to be raised based on available facts. The Assessee referenced the Karnataka High Court's decision in CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 218 Taxman 423 (Kar.), which held that a penalty notice must specify the exact charge by striking out the irrelevant portion. The Tribunal reviewed the show cause notices and found that they did not strike off the irrelevant portions, thus failing to specify the exact charge.

The Department's Representative (DR) relied on several decisions, including the Supreme Court's ruling in MAK Data (P) Ltd. Vs. CIT 358 ITR 593 (SC), which emphasized that satisfaction for penalty proceedings need not be recorded in a specific manner. However, the Tribunal noted that this decision did not address the issue of defective show cause notices under Section 274. The Tribunal also considered other decisions but found them not relevant or contrary to the jurisdictional High Court's ruling in Manjunatha Cotton & Ginning Factory.

The Tribunal reiterated the principles laid down by the Karnataka High Court, emphasizing that a penalty notice must clearly state the grounds for penalty, whether for concealment or furnishing inaccurate particulars. The use of a standard form without striking out irrelevant clauses indicates non-application of mind and violates principles of natural justice.

Conclusion:

The Tribunal concluded that the show cause notices issued under Section 274 were defective as they did not specify the grounds for penalty. Following the Karnataka High Court's decision in Manjunatha Cotton & Ginning Factory and the Supreme Court's dismissal of the Department's SLP against it, the Tribunal held that the penalty imposition could not be sustained. Consequently, the penalties were directed to be canceled, and the appeals were allowed. The judgment emphasized the necessity for clear and specific charges in penalty notices to uphold principles of natural justice.

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