2019 (12) TMI 1231 - AT - Income Tax

Penalty u/s 271(1)(c) - as alleged notice issued by the AO u/s 274 r.w.s 271(1) ( c) of the Act is defective for not mentioning the specific charge - HELD THAT - We find the notice issued u/s. 274 r.w.s 271(1)(c ) of the Act, does not specify the charge of offence committed by the assessee viz. whether had concealed the particulars of income or had furnished inaccurate particulars of income. Hence the said notice is to be held as defective. Case followed DR. MURARI MOHAN KOLEY 2018 (9) TMI 1 - CALCUTTA HIGH COURT - Decided in favour of assessee.

Issues Involved:
1. Defective notice under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of penalty imposed based on the defective notice.
3. Conflicting judicial precedents on the validity of defective notices for penalty proceedings.

Issue-wise Detailed Analysis:

1. Defective Notice under Section 274 r.w.s 271(1)(c) of the Income Tax Act, 1961:
The core issue in the appeal was the validity of the notice issued by the Assessing Officer (AO) under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961. The notice was found to be defective as it did not specify the exact charge against the assessee, i.e., whether the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." The Tribunal noted that the notice's failure to mention the specific charge rendered it defective, as per the precedent set by the Hon’ble Supreme Court in the case of SSA’s Emerald Meadows.

2. Validity of Penalty Imposed Based on Defective Notice:
The Tribunal observed that the penalty imposed by the AO on the basis of the defective notice was not maintainable in the eye of law. The Departmental Representative (DR) argued that the written submission filed by the department on earlier occasions should be considered. However, the Tribunal found that the same set of written submissions had been filed before the Coordinate Bench in a similar case, which had preferred to follow the ratio laid down by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory. The Tribunal emphasized that when there are two views on an issue, the view favoring the assessee should be adopted, as enunciated by the Hon’ble Supreme Court in the case of Vegetable Products Ltd.

3. Conflicting Judicial Precedents on the Validity of Defective Notices for Penalty Proceedings:
The Tribunal discussed various judicial precedents cited by the DR, including decisions from the Hon’ble Calcutta High Court, Hon’ble Bombay High Court, and other ITAT benches. The Tribunal noted that while some courts had held that a mere mistake in the notice language or non-striking of the inaccurate portion does not invalidate the notice, the Hon’ble Karnataka High Court had taken a different view, emphasizing the necessity of specifying the charge in the notice. The Tribunal chose to follow the Karnataka High Court's view, which was more favorable to the assessee. The Tribunal also noted that the Hon’ble Supreme Court had dismissed the SLP against the Karnataka High Court's decision, reinforcing the view that a defective notice cannot sustain a penalty.

Conclusion:
The Tribunal concluded that the notice issued under Section 274 r.w.s 271(1)(c) was defective due to the lack of specification of the charge. Consequently, the penalty imposed based on such a defective notice was not sustainable. The Tribunal set aside the order of the CIT(A) and canceled the penalty of ?1,78,068/- levied by the AO for the assessment year 2009-10. The appeal of the assessee was allowed, and the order was pronounced in the court on 24.12.2019.

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