2019 (6) TMI 1118 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - defective show-cause notice - non specification of charge - defective notice - HELD THAT - Notice issued by the AO u/s 274 read with Section 271(l)(c) to be bad in law as it did not specify which limb of Section 271(l)(c) 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.

Issues Involved:
1. Defective Show-Cause Notice under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of Penalty Imposition under Section 271(1)(c) based on Defective Notice.

Issue-wise Detailed Analysis:

1. Defective Show-Cause Notice under Section 271(1)(c) of the Income Tax Act, 1961:

The primary issue in this case revolves around the defective show-cause notice dated 29.04.2016, where the Assessing Officer (AO) did not specify whether the penalty under Section 271(1)(c) of the Income Tax Act was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." The appellant's representative argued that such a defect renders the notice invalid, citing several judicial decisions including those from the Hon'ble Calcutta High Court and the Hon'ble Supreme Court. The representative emphasized that the penalty should be canceled due to this defect.

2. Validity of Penalty Imposition under Section 271(1)(c) based on Defective Notice:

The respondent's representative countered by referring to the decision of the Hon'ble Tamil Nadu High Court in Sundaram Finance Ltd. vs. ACIT, where a similar challenge to an invalid notice was not accepted, and the penalty was upheld. This decision was confirmed by the Hon'ble Supreme Court. The respondent urged the bench to confirm the action of the Commissioner of Income Tax (Appeals) [CIT(A)] and dismiss the appeal.

Judgment Analysis:

Hearing and Perusal:
The tribunal heard both parties and reviewed the records, especially the show-cause notice issued by the AO. The appellant's counsel cited the Hon'ble Karnataka High Court's decision in CIT vs. SSA’s Emerald Meadows, which held that penalty imposition under Section 271(1)(c) is invalid if the show-cause notice does not specify the charge. This decision was upheld by the Hon'ble Supreme Court. Similar judgments from the Hon'ble Bombay High Court and ITAT were also cited, which supported the appellant's contention.

Tribunal's Observations:
The tribunal noted that the Coordinate Bench in Jeetmal Choraria vs. ACIT had addressed similar issues, where it was held that non-specification of the charge in the show-cause notice invalidates the penalty. The tribunal discussed various decisions, including those from the Hon'ble Bombay High Court and ITAT Mumbai, which had differing views. However, it emphasized that where two views exist, the view favorable to the assessee should be followed.

Conclusion:
The tribunal concluded that the show-cause notice in the present case was defective as it did not specify the charge against the assessee. Following the decisions of the Hon'ble Karnataka High Court and the Hon'ble Supreme Court, the tribunal held that the penalty imposed by the AO and confirmed by the CIT(A) under Section 271(1)(c) could not be sustained. Therefore, the tribunal directed the cancellation of the penalty.

Final Order:
The appeals of the assessee were allowed, and the penalties were deleted. The order was pronounced in the open court on 19 June 2019.

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