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2021 (9) TMI 884 - AT - Income TaxPenalty u/s 271(1)(c) - Defective notice u/s 274 - failure to strike off the irrelevant default in the body of the SCN - assessee submitted that as the A.O had failed to strike off the irrelevant default in the Show cause notice - HELD THAT - As relying on MR. MOHD. FARHAN A. SHAIKH 2021 (3) TMI 608 - BOMBAY HIGH COURT validity of penalty imposed u/s 271(1)(c) de-hors striking off the irrelevant default in the SCN, had observed, that the said failure despite a clear recording of satisfaction for imposing the penalty on one or other, or both grounds mentioned in Sec. 271(1)(c) in the assessment order, would, however, on account of the aforesaid defect vitiate the penalty proceedings. Ain the case of the present assessee before us, it is a matter of an admitted fact that the A.O had failed to strike off the irrelevant default in the body of the SCN , dated 23.01.2015, therefore, the penalty thereafter imposed by him u/s 271(1)(c) of the Act, vide his order dated 27.07.2015 cannot be sustained and is liable to be struck down. - Decided in favour of assessee.
Issues Involved:
1. Validity of penalty proceedings under Section 271(1)(c) of the Income Tax Act. 2. Adequacy of the 'Show Cause' notice issued under Section 274 read with Section 271. Detailed Analysis: 1. Validity of Penalty Proceedings under Section 271(1)(c): Background: The assessee filed a return of income for A.Y. 1997-98, declaring a total income of ?20,140. The return was initially processed under Section 143(1). Subsequently, based on information from the French Government under the Indian-France DTAA, it was revealed that the assessee held a foreign bank account. The case was reopened under Section 147, and an addition of ?27,50,000 was made to the assessee's income. Penalty proceedings under Section 271(1)(c) were initiated for furnishing inaccurate particulars of income and concealment of income. Proceedings: The A.O issued a 'Show Cause' notice under Section 274 read with Section 271, but failed to strike off the irrelevant default. Consequently, the A.O imposed a penalty of ?10,81,100. Appeal: The assessee contended that the penalty could not be sustained because the A.O did not specify the exact default in the 'Show Cause' notice. The reliance was placed on the judgment of the Bombay High Court in Mohd. Farhan A. Shaikh Vs. Dy. Commissioner of Income Tax, which held that a mere defect in the show cause notice due to failure to strike off the irrelevant matter would vitiate the penalty proceedings. Tribunal's Findings: The tribunal observed that the A.O had indeed failed to strike off the irrelevant default in the 'Show Cause' notice. The tribunal emphasized that the two defaults, 'concealment of income' and 'furnishing of inaccurate particulars of income', are distinct and operate independently. Therefore, it was obligatory for the A.O to clearly specify the default for which the penalty was being imposed. The tribunal found that the failure to do so indicated non-application of mind and violated the principles of natural justice. Judicial Precedents: The tribunal referred to various judicial pronouncements, including the judgments of the Supreme Court in Dilip N. Shroff Vs. Jt. CIT and T. Ashok Pai Vs. CIT, which highlighted the importance of specifying the charge in penalty proceedings. The tribunal also cited the Karnataka High Court's decision in CIT Vs. SSA’s Emerald Meadows and the Bombay High Court's decision in CIT Vs. Samson Perinchery, which supported the assessee's contention. Conclusion: The tribunal concluded that the penalty proceedings were vitiated due to the A.O's failure to strike off the irrelevant default in the 'Show Cause' notice. Consequently, the penalty imposed under Section 271(1)(c) was struck down. 2. Adequacy of the 'Show Cause' Notice: Contention: The assessee argued that the 'Show Cause' notice issued under Section 274 read with Section 271 was defective as it did not specify the exact default. This argument was supported by the recent 'full bench' judgment of the Bombay High Court in Mohd. Farhan A. Shaikh Vs. Dy. Commissioner of Income Tax. Tribunal's Findings: The tribunal noted that the 'Show Cause' notice must clearly indicate whether the penalty is for 'concealment of income' or 'furnishing of inaccurate particulars of income'. The failure to do so not only reflects non-application of mind but also defeats the purpose of giving a reasonable opportunity of being heard to the assessee. Judicial Precedents: The tribunal referred to the Supreme Court's dismissal of the SLP in CIT Vs. SSA’s Emerald Meadows, which upheld the Karnataka High Court's decision that a notice not specifying the limb of Section 271(1)(c) is bad in law. Conclusion: The tribunal held that the 'Show Cause' notice issued to the assessee was invalid due to the failure to specify the exact default. This invalidity vitiated the penalty proceedings, leading to the cancellation of the penalty. Consolidated Order: The tribunal applied the same reasoning to the appeals for A.Y. 2006-07 and A.Y. 2007-08, as the facts and issues were identical. Consequently, the appeals for all three assessment years (1997-98, 2006-07, and 2007-08) were allowed. Final Judgment: The appeals filed by the assessee in ITA Nos. 97, 98, and 101/Mum/2020 were allowed. The penalty imposed under Section 271(1)(c) was struck down due to the invalid 'Show Cause' notice.
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