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2019 (5) TMI 99 - AT - Income TaxPenalty u/s 271(1)(c ) - notice defective for not mentioning the specific charge - HELD THAT - Notice issued by the AO u/s 274 r.w.s. 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) - on the same issue there is two conflicting judgments of Hon ble Supreme Court. In this scenario, we take the support of the established principle for a proposition that when there are two views on the issue, on in the favouring of the assessee should be adopted for that we rely on the judgment of the Hon ble Supreme Court in the case of Vegetable Products Ltd. 1973 (1) TMI 1 - SUPREME COURT . Decided in favour of assessee. - Decided in favour of assessee.
Issues Involved:
1. Validity of penalty notice under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961. 2. Specificity of the charge mentioned in the penalty notice. 3. Applicability of judicial precedents on defective penalty notices. Issue-wise Detailed Analysis: 1. Validity of Penalty Notice under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961: The core issue revolves around the validity of the penalty notice issued under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961. The Assessee argued that the notice dated 21/03/2016 issued by the Assessing Officer (AO) was defective as it did not specify the specific charge. The Assessee relied on the decision of the Hon’ble Supreme Court in the case of SSA’s Emerald Meadows, asserting that the imposition of penalty on the basis of a defective notice is not maintainable. 2. Specificity of the Charge Mentioned in the Penalty Notice: The Assessee contended that the penalty notice was vague and did not clearly state whether the penalty was for "concealment of income" or for "furnishing inaccurate particulars of income." This lack of specificity was argued to render the notice defective. The Department, however, countered this by citing various judicial precedents, including the judgment of the Hon’ble Calcutta High Court in Dr. Syamal Baran Mondal Vs. CIT, which stated that Section 271 does not mandate that the recording of satisfaction about concealment of income must be in specific terms and words. 3. Applicability of Judicial Precedents on Defective Penalty Notices: The Department referred to several judicial decisions to support their stance that a defective notice does not invalidate penalty proceedings. These included: - The Hon’ble Bombay High Court in CIT Vs. Smt. Kaushalya, where it was held that mere non-striking off specific limbs in the notice cannot by itself invalidate the notice. - The Hon’ble Madras High Court in Sundaram Finance Ltd. vs. ACIT, where it was observed that even if there was a defect in the notice, it caused no prejudice to the Assessee. - ITAT Mumbai decisions in cases like Trishul Enterprises Vs. DCIT and Earthmoving Equipment Service Corporation vs. DCIT, which upheld penalty proceedings despite defects in the notice. The Tribunal, however, preferred to follow the judgment of the Hon’ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory, which emphasized the necessity of specifying the charge in the penalty notice. The Tribunal noted that when there are two views on an issue, the view favorable to the Assessee should be adopted, as enunciated by the Hon’ble Supreme Court in the case of Vegetable Products Ltd. Conclusion: The Tribunal found that the notice dated 21/03/2016 issued under Section 274 read with Section 271(1)(c) of the Act did not specify the charge of offense committed by the Assessee, rendering it defective. Consequently, the Tribunal held that the imposition of penalty could not be sustained and directed the cancellation of the penalty. The Tribunal’s decision was influenced by the principle that when there are conflicting judicial views, the view favorable to the Assessee should be adopted. The appeal of the Assessee was allowed, and the penalty of ?3,60,499/- levied by the AO was canceled.
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