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2015 (12) TMI 1524 - AT - Income TaxPenalty u/s 271(1)( c) - Held that - The show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. See case of CIT Vs. MWP Ltd. 2013 (12) TMI 1214 - KARNATAKA HIGH COURT wherein held that mere mention of Penalty Proceedings under section 271(1)( c) initiated separately in assessment order, does not amount to a direction under Section 271(1)( (c) for levy of penalty. - Decided in favour of assessee
Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961. 2. Proper satisfaction by the Assessing Officer (AO) for initiating penalty proceedings. 3. Defective show cause notice under Section 274 of the Act. Detailed Analysis: 1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961: The appeal by the Assessee is against the imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was imposed by the AO and confirmed by the CIT(A) for the Assessment Year (AY) 2003-04. The Assessee had made an offer to tax undisclosed income of Rs. 10,44,874 during the assessment proceedings post a search operation. The AO imposed the penalty on the grounds that the Assessee had concealed income and furnished inaccurate particulars of income. The Assessee contended that the penalty was imposed without proper satisfaction and that the show cause notice was defective. 2. Proper Satisfaction by the Assessing Officer (AO) for Initiating Penalty Proceedings: The Tribunal examined whether the AO had arrived at proper satisfaction for initiating penalty proceedings under Section 271(1)(c). It was observed that the assessment order did not explicitly indicate that the AO was of the view that the Assessee had concealed particulars of income or furnished inaccurate particulars. The Tribunal referred to the decision of the Hon'ble Delhi High Court in Ms. Madhushree Gupta Vs. Union of India, which held that the AO must arrive at a prima facie satisfaction during the course of proceedings regarding the Assessee's concealment of income or furnishing inaccurate particulars before initiating penalty proceedings. The Tribunal noted that the AO had accepted the Assessee's offer to tax without indicating any concealment or furnishing of inaccurate particulars. Therefore, the initiation of penalty proceedings was not proper, and the imposition of penalty was unsustainable. 3. Defective Show Cause Notice under Section 274 of the Act: The Tribunal also addressed the issue of the defective show cause notice under Section 274. The notice did not specify whether the penalty was being imposed for "furnishing inaccurate particulars of income" or "concealing particulars of such income". The Tribunal referred to the decision of the Hon'ble Karnataka High Court in CIT Vs. Manjunatha Cotton & Ginning Factory, which held that a show cause notice must specifically state the grounds for imposing penalty. The use of a printed form without striking out the irrelevant portions was insufficient and violated the principles of natural justice. The Tribunal concluded that the defective notice rendered the penalty proceedings invalid. Conclusion: The Tribunal held that the imposition of penalty under Section 271(1)(c) was unsustainable due to the lack of proper satisfaction by the AO and the defective show cause notice under Section 274. Consequently, the orders imposing penalty were canceled, and the appeal by the Assessee was allowed. The Tribunal did not address other arguments on the merits of the penalty order due to its conclusions on the primary issues.
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