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2016 (10) TMI 1302 - AT - Income TaxPenalty u/s 271(1)(c) - Defective notice - Addition u/s. 68 on account of unexplained cash credit - HELD THAT - Notice u/s.274 r.w.s.271 of the Income Tax Act issued by the AO. It is a printed form with so many clauses. This notice does not specifically point out as to whether there is any concealment of particulars of income or furnishing any inaccurate particulars of such income but across the printed line, there is a big tick mark. 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 M/S MANJUNATHA COTTON AND GINNING FACTORY OTHS., M/S. V.S. LAD SONS, 2013 (7) TMI 620 - KARNATAKA HIGH COURT we hold that the order imposing penalty has to be held as invalid and consequently penalty imposed is cancelled. - Decided in favour of assessee.
Issues Involved:
1. Legitimacy of the penalty imposed under Section 271(1)(c) of the Income Tax Act. 2. Validity of the show cause notice issued under Section 274 of the Income Tax Act. 3. Whether the penalty proceedings were sustainable given the defects in the notice. Detailed Analysis: Legitimacy of the Penalty Imposed under Section 271(1)(c): The original assessment under Section 143(3) was completed on 18.12.2007, with an addition of ?14,00,000/- made by the Assessing Officer (AO) under Section 68 due to unexplained cash credits. This addition was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] on 6.12.2010. Subsequent search and seizure operations under Section 132 on 23.11.2007 led to an assessment under Section 153A, maintaining the addition of ?14 lakhs. The AO concluded that the assessee had introduced bogus share application money, furnishing inaccurate particulars of income and concealing income, thus initiating penalty proceedings under Section 271(1)(c), resulting in a penalty of ?10 lakhs. Validity of the Show Cause Notice Issued under Section 274: The assessee challenged the penalty, arguing that the show cause notice under Section 274 did not specify whether the penalty was for "furnishing inaccurate particulars of income" or "concealing particulars of income," thus making the notice invalid. The assessee cited the Karnataka High Court decision in CIT Vs. Manjunatha Cotton & Ginning Factory, which held that a show cause notice must clearly specify the charge, and failure to do so renders the penalty proceedings unsustainable. Sustainability of Penalty Proceedings Given Defects in the Notice: The Tribunal examined the notice and found it to be a printed form with multiple clauses, none of which were specifically marked to indicate the exact charge. The Tribunal referenced the principles laid out by the Karnataka High Court, emphasizing that the notice must clearly state the grounds for penalty to ensure the assessee has a fair opportunity to contest the proceedings. The Tribunal concluded that the defective notice invalidated the penalty proceedings. The Tribunal also noted that the Hon'ble Supreme Court in MAK Data (P) Ltd. Vs. CIT held that satisfaction for initiating penalty proceedings does not need to be recorded in a particular manner. However, the Tribunal found this case distinguishable due to the defective notice. Conclusion: Based on the principles established by the Karnataka High Court and the facts of the case, the Tribunal held that the show cause notice under Section 274 was defective and did not meet the legal requirements. Consequently, the penalty imposed under Section 271(1)(c) was deemed invalid and was cancelled. The appeal filed by the assessee was allowed, and the penalty orders were annulled. Final Judgment: The appeal by the assessee was allowed, and the penalty imposed under Section 271(1)(c) was cancelled due to the defective show cause notice under Section 274. The order was pronounced in the open court on 07/10/2016.
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