2019 (3) TMI 389 - AT - Income Tax

Penalty u/s 271(1)(c) - non mentioning the specific charge in the Show Cause Notice issued u/s 274 - defective notice - HELD THAT - The charge for which penalty is proposed to be levied under section 271(1)(c) of the Act, whether for concealment of income, or for furnishing of inaccurate particulars of income, is not specific. The law mandates that the authority who is proposing to impose penalty shall be certain as to the basis on which the penalty is being levied and the notice must reflect that specific reason, so that the assessee, to whom such notice is given, can prepare himself regarding the defence which he would like to take to support his case. The show cause notice, which has not specified the charge and limb under which the penalty is proposed to be levied, is void ab initio and the consequent penalty imposed on the basis of such notice is, therefore, illegal and bad in law - Decided in favour of assessee.

Summary

Issues:
Challenge to penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 based on lack of specificity in the show cause notice.

Analysis:
The appeal before the Appellate Tribunal ITAT Lucknow concerned the imposition of a penalty under section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2012-13. The appellant contested the penalty upheld by the ld. CIT(A) on various grounds. The primary contention revolved around the lack of specificity in the show cause notice regarding the basis for the penalty under section 271(1)(c) of the Act. The appellant argued that the notice did not clearly indicate whether the penalty was for concealment of income or furnishing inaccurate particulars of income, which is essential for the assessee to prepare a defense. The appellant relied on legal precedents emphasizing the importance of a specific charge in penalty proceedings to ensure compliance with natural justice principles.

During the hearing, the ld. A.R. of the assessee highlighted the ambiguity in the show cause notice, asserting that any penalty imposed based on such a vague notice is legally flawed and should be canceled. In contrast, the ld. D.R. supported the decisions of the lower authorities. The Tribunal examined the notice and concurred with the appellant's argument, emphasizing the necessity for clarity in specifying the charge for levying penalties under section 271(1)(c) of the Act. The Tribunal referenced several legal cases, including 'CIT vs. SSA's Emerald Meadows' and 'CIT and Another vs. Manjunath Cotton & Ginning Factory', which underscored the requirement for a precise charge in penalty notices to uphold the principles of natural justice.

The Tribunal further cited 'Meherjee Cassinath Holdings Pvt. Ltd vs. ACIT (ITAT Mumbai)' and 'Chandra Prakash Bubna vs. Income Tax Officer, Ward 27(3), Kolkata', among others, to support the view that penalty proceedings must adhere to the principles of natural justice and clearly specify the grounds for penalty imposition. Based on the legal precedents and the established legal position, the Tribunal concluded that the show cause notice lacking specificity regarding the charge and limb for the penalty was void ab initio. Consequently, the penalty imposed based on such an inadequate notice was deemed illegal and was directed to be deleted. Therefore, the appeal challenging the penalty under section 271(1)(c) was allowed by the Tribunal.