2019 (5) TMI 743 - AT - Income Tax

Penalty levied u/s. 271(1)(c) - non specification of specific charge against the assessee namely as to whether the assessee was being proceeded against for having concealed particulars of income or having furnished inaccurate particulars of income - 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) - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the Income-tax Act, 1961.
2. Validity of the show cause notice under Section 274 read with Section 271 of the Act.

Issue-Wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:
The appeal was filed by the assessee challenging the order of the Commissioner of Income Tax (Appeals)-1, Jodhpur, which confirmed the penalty levied under Section 271(1)(c) of the Income-tax Act, 1961. The penalty was imposed by the Assessing Officer (AO) after an assessment under Section 144 of the Act was made, determining a total income of ?3,69,48,290/- against the assessee’s returned income of ?1,350/-. The AO added ?3,69,46,939/- on account of unexplained/unsecured loans, unexplained new capital, and disallowance on account of personal use. Considering this as suppressed and undisclosed income, the AO initiated penalty proceedings under Section 271(1)(c) by issuing a notice under Section 274 read with Section 271 of the Act. The AO imposed a penalty of ?2,71,479/- as 100% of the tax sought to be evaded. The CIT(A) confirmed the AO's action, leading to the present appeal.

2. Validity of the Show Cause Notice under Section 274 read with Section 271 of the Act:
The primary contention of the assessee was that the show cause notice issued under Section 274 read with Section 271 of the Act did not specify the charge against the assessee, i.e., whether it was for concealment of particulars of income or furnishing inaccurate particulars of income. The notice failed to strike out the irrelevant portion, making it ambiguous. The assessee relied on the decision of the Hon’ble Karnataka High Court in CIT vs. SSA’s Emerald Meadows, where it was held that such a defective notice renders the penalty proceedings invalid. This view was upheld by the Hon’ble Supreme Court when the revenue's appeal was dismissed. The assessee also cited similar judgments from the Hon’ble Bombay High Court and the ITAT Kolkata.

The Departmental Representative (DR) opposed the assessee's submission, citing various case laws, including decisions from the Hon’ble Calcutta High Court and ITAT Mumbai, which suggested that specific recording of satisfaction about concealment of income is not mandated in specific terms and words. However, the Tribunal observed that these cases were distinguishable and not directly applicable to the issue of specific charges in the mandatory show cause notice under Section 274 of the Act.

The Tribunal noted that the line of reasoning of the Hon’ble Bombay High Court and the Hon’ble Patna High Court is that the issuance of notice is an administrative device to inform the assessee about the proposal to levy penalty, and mere mistakes in the language or non-striking of the inaccurate portion do not invalidate the notice. However, the Tribunal preferred to follow the view of the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, which emphasized the necessity of a specific charge in the show cause notice.

Conclusion:
The Tribunal concluded that the show cause notice issued in the present case under Section 274 of the Act did not specify the charge against the assessee, as it failed to strike out the inappropriate words. Consequently, the imposition of penalty could not be sustained. Respectfully following the decision of the coordinate bench of the Tribunal (Kolkata) and the Hon’ble Karnataka High Court, the Tribunal held that the penalty imposed and confirmed by the CIT(A) in the present case was invalid and directed its cancellation. The appeal of the assessee was allowed.

Order:
The appeal of the assessee was allowed, and the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961, was deleted. The order was pronounced in the open court on 8th May 2019.