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2019 (5) TMI 691 - AT - Income TaxPenalty levied u/s. 271(1)(c) - undisclosed contract receipt - non defective notice - non specification of charge - 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. The plea the assessee which is based on the decisions referred to in the earlier part of this order has to be accepted. We therefore hold that imposition of penalty in the present case cannot be sustained and the same is directed to be cancelled. See JEETMAL CHORARIA VERSUS A.C.I.T., CIRCLE-43, 2017 (12) TMI 883 - ITAT, KOLKATA - Decided in favour of assessee.
Issues Involved:
1. Validity of penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961. 2. Specificity of the charge in the show cause notice under Section 274 read with Section 271 of the Act. 3. Legal precedents and their applicability to the case. Issue-wise Detailed Analysis: 1. Validity of Penalty Imposed under Section 271(1)(c) of the Income-tax Act, 1961: The assessee appealed against the penalty of ?7,05,163/- imposed by the Assessing Officer (AO) under Section 271(1)(c) of the Income-tax Act, 1961, which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The penalty was levied due to the addition of ?22,82,079/- as undisclosed contract receipt, leading to a total assessed income of ?40,85,180/- against the returned income of ?18,03,103/-. The AO initiated penal proceedings on 29.01.2013 by issuing a notice under Section 274 read with Section 271 of the Act. 2. Specificity of the Charge in the Show Cause Notice under Section 274 read with Section 271 of the Act: The crux of the appeal was the contention that the show cause notice issued under Section 274 did not specify the exact charge against the assessee—whether it was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." The notice used a standard template without striking out the irrelevant portion, thus failing to inform the assessee of the specific charge. This lack of specificity was argued to render the penalty proceedings invalid. 3. Legal Precedents and Their Applicability to the Case: The assessee’s counsel cited several judicial decisions to support their argument: - CIT vs. SSA’s Emerald Meadows (Karnataka High Court): The court held that penalty under Section 271(1)(c) is invalid if the show cause notice does not specify the charge, a decision upheld by the Supreme Court. - CIT vs. Manjunatha Cotton and Ginning Factory (Karnataka High Court): The court emphasized that a vague notice without a specific charge is invalid. - CIT vs. Shri Samson Perinchery (Bombay High Court): The court followed the Karnataka High Court’s decision, invalidating penalties based on defective notices. The Department’s Representative (DR) opposed these arguments, citing: - Dr. Syamal Baran Mondal vs. CIT (Calcutta High Court): The court held that specific wording in recording satisfaction is not mandatory. - CIT vs. Kaushalya (Bombay High Court): The court ruled that a mistake in the notice language or non-striking of the inaccurate portion does not invalidate the notice if the assessee is aware of the charges. - Earthmoving Equipment Service Corporation vs. DCIT (Mumbai ITAT): The tribunal did not follow the Karnataka High Court’s decision, stating that the penalty was deleted for multiple reasons, not solely due to the defective notice. However, the tribunal noted that the Mumbai ITAT and other benches are bound to follow the decisions of their respective high courts. The tribunal concluded that where two views exist, the one favorable to the assessee should be followed, thus preferring the Karnataka High Court’s decision. Conclusion: The tribunal observed that the show cause notice issued under Section 274 did not specify the charge against the assessee, making the penalty proceedings invalid. Consequently, the penalty imposed and confirmed by the CIT(A) was deleted, and the appeal of the assessee was allowed. Final Judgment: The tribunal allowed the appeal of the assessee, invalidating the penalty imposed under Section 271(1)(c) due to the defective show cause notice. The order was pronounced in the open court on 7th May, 2019.
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