2019 (8) TMI 296 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - Show cause notice has not struck off the irrelevant portion as to whether the charge against the assessee is concealing particulars of income or furnishing of inaccurate particulars of income - HELD THAT - As observed that the show cause notices issued in the case on hand issued under section 274 r.w.s. 271(1)(c) of the Act dated 26.11.2010 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 impugned show cause notice under section 274 r.w.s. 271(1)(c) of the Act shows the AO has not struck out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. The plea of the ld. Counsel for 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 case on hand cannot be sustained and the same is directed to be cancelled. See M/S SSA S EMERALD MEADOWS 2015 (11) TMI 1620 - KARNATAKA HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 for concealment of income.
2. Validity of the show cause notice issued under section 274 r.w.s. 271(1)(c) of the Act.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):
The appeal by the assessee was against the order dated 25.10.2018 of CIT(A), Hubli, confirming the AO's order dated 26.03.2018 imposing a penalty of ? 4,79,920/- under section 271(1)(c) of the Income Tax Act, 1961 for concealment of particulars of income. The assessee, engaged in retail trading of food articles, failed to file a return for AY 2008-09 within the specified date. The AO, having information of the assessee's turnover exceeding ? 40 lakhs, issued multiple notices which were not responded to, leading to an ex-parte assessment under section 144, determining the income at ? 18,97,038/-. Penalty proceedings were initiated simultaneously. The CIT(A) partly allowed the appeal, reducing the penalty to 100% of the tax sought to be evaded based on a prior Tribunal decision in the assessee's case.

2. Validity of Show Cause Notice under Section 274 r.w.s. 271(1)(c):
The assessee contended that the CIT(A) failed to follow the binding decision of the Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (359 ITR 565), which requires the show cause notice to specify whether the penalty is for "furnishing inaccurate particulars of income" or "concealing particulars of such income." The AO's notice dated 26.11.2010 did not strike out the irrelevant portion, making it unclear. The Tribunal supported this view, referencing the Karnataka High Court's decision that a vague notice offends principles of natural justice and cannot sustain penalty imposition. The Tribunal also noted that the decision in the case of CIT vs. SSA's Emerald Meadows, upheld by the Supreme Court, supported this stance.

Conclusion:
The Tribunal found the show cause notice defective as it did not specify the exact charge. Following the principles laid down by the Karnataka High Court in Manjunatha Cotton & Ginning Factory, the Tribunal held that the imposition of penalty could not be sustained due to the defective notice. Consequently, the penalty imposed was directed to be cancelled, and the assessee's appeal was allowed.

Result:
The assessee's appeal for Assessment Year 2006-07 was allowed, and the penalty imposed was cancelled. The judgment was pronounced in the open court on 02nd August, 2019.