2014 (6) TMI 976 - AT - Income Tax

Penalty u/s. 271(1)(c) - additions made in the proceedings u/s. 153A - defective notice - 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. The show cause notice is also bad for the reason that in the A.Ys. 2008-09 and 2009-10 the show cause notice refers to imposition of penalty u/s. 271AAA whereas the order imposing penalty has been passed u/s. 271(1)(c) of the Act. In our view the aforesaid defect cannot be said to be curable u/.s 292BB of the Act as the defect cannot be said to be a notice which is in substance and effect in conformity with or according to the intent and purpose of the Act. See THE COMMISSIONER OF INCOME TAX & OTHS. Versus M/s MANJUNATHA COTTON AND GINNING FACTORY & OTHS. 2013 (7) TMI 620 - KARNATAKA HIGH COURT - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the penalty orders under section 271(1)(c) of the Income Tax Act, 1961.
2. Defective show cause notice under section 274 of the Act.
3. Applicability of section 271AAA of the Act.

Detailed Analysis:

1. Validity of the Penalty Orders under Section 271(1)(c) of the Income Tax Act, 1961:
The assessee challenged the orders of the CIT(Appeals) confirming the penalties imposed by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act, 1961. The penalties were imposed following a search and seizure operation under section 132 of the Act, which led to the discovery of undisclosed income. The AO initiated penalty proceedings under section 271(1)(c) for the assessment years 2006-07, 2008-09, and 2009-10, and these were confirmed by the CIT(Appeals). The Tribunal examined whether the penalties were validly imposed, considering the technical objections raised by the assessee.

2. Defective Show Cause Notice under Section 274 of the Act:
The Tribunal noted that the show cause notices issued under section 274 of the Act for the assessment years 2008-09 and 2009-10 were purportedly issued under section 271AAA but the penalties were imposed under section 271(1)(c). The Tribunal referred to the Karnataka High Court's decision in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, which held that a notice under section 274 should specifically state whether the penalty is for concealment of particulars of income or for furnishing inaccurate particulars of income. The Tribunal found that the show cause notices were defective as they did not specify the grounds for the penalty, and the relevant columns of the printed form were not struck off by the AO. This defect rendered the notices invalid, leading to the conclusion that the penalty orders were bad in law and liable to be quashed.

3. Applicability of Section 271AAA of the Act:
The Tribunal observed that the provisions of section 271AAA were applicable to the assessee's case, as the search was conducted after 1.6.2007 but before 1.7.2012. The Tribunal highlighted that the AO should have disclosed in the show cause notice whether the penalty was being levied under section 271AAA or section 271(1)(c). The failure to specify this in the show cause notice contributed to the invalidity of the penalty orders. The Tribunal emphasized that the defect in the show cause notice could not be cured under section 292BB of the Act, as it was not in conformity with the intent and purpose of the Act.

Conclusion:
The Tribunal concluded that the penalty orders for all three assessment years were invalid due to the defective show cause notices and the improper application of penalty provisions. Consequently, the penalties imposed were canceled. The appeals were allowed, and the stay petitions filed by the assessee were dismissed as infructuous. The judgment was pronounced in the open court on June 5, 2014.