2015 (9) TMI 547 - AT - Income Tax

Penalty u/s. 271(1)(c) - vlidity of notice u/s. 274 - unaccounted sales - entire sale value was treated as income of the Assessee and brought to tax rejecting assessee contention that only the gross profit on these unaccounted sales can be added as income of the Assessee and not the entire sales - Held that - On the facts of the present case 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. Following the decision of tin the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT wherein held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income.we hold that the orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled. - Decided in favour of assessee.

Summary

Issues:
Appeal against penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for assessment years 2004-05 to 2007-08.

Analysis:
1. The assessee challenged the penalty imposed under section 271(1)(c) by the Assessing Officer, which was confirmed by the CIT(A) for all four assessment years. The basis for the penalty was unaccounted sales found in bank accounts during a survey, treated as the entire sale value being income.

2. The assessee raised technical objections regarding the validity of the penalty order, specifically related to the show cause notice issued under section 274 of the Act. The notice did not specify the grounds for penalty imposition as required by law, citing a decision by the Karnataka High Court.

3. The Karnataka High Court's decision emphasized the necessity of clearly stating the grounds for penalty imposition in the notice under section 274, distinguishing between concealment of income and furnishing inaccurate particulars of income. It highlighted that penalty proceedings should be based on the same grounds as the initiation, ensuring principles of natural justice are upheld.

4. The Court's conclusion outlined key principles for imposing penalties under section 271(1)(c), emphasizing that the conditions for penalty imposition must be discernible from the assessment order or other relevant authorities. It clarified that penalty imposition is not automatic and must be based on valid grounds, ensuring the assessee's right to contest and provide explanations.

5. Considering the defective show cause notice and following the Karnataka High Court's decision, the ITAT held the penalty orders invalid for all assessment years. The appeals by the assessee were allowed, and the penalties imposed were canceled.

This detailed analysis of the judgment highlights the issues, legal principles, and the reasoning behind the decision to cancel the penalties imposed under section 271(1)(c) for the mentioned assessment years.