2017 (9) TMI 1961 - AT - Income Tax

Penalty u/s 271(1)(c) - Notice challenged in the absence of any specific mention in the show-cause notices issued under section 274 - whether the assessee is guilty of having furnished inaccurate particulars of income or of having concealed particulars of such income the initiation of penalty proceedings - HELD THAT - If the notice issued under section 274 is issued by the Assessing Officer in the standard printed proforma without striking out the irrelevant clause like in the present case the same in our opinion cannot convey to the assessee as to which of the charges he has to respond and such notice issued by the Assessing Officer without application of mind is liable to treated as vague on the basis of which no penalty can be imposed on the assessee as held by the Hon ble Karnataka High Court inter alia in the case of SSA s Emerald Meadows 2015 (11) TMI 1620 - KARNATAKA HIGH COURT and Manjunatha Cotton Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT . As in the view that the notices issued by the Assessing Officer under section 274 in the present case for both the years under consideration not being in accordance with law the penalty orders passed by him in pursuance thereof are liable to be cancelled being invalid. We accordingly uphold the impugned orders of the ld. CIT(Appeals) cancelling the penalties imposed by the Assessing Officer under section 271(1)(c) for both the years under consideration although on different grounds. Voluntary declaration of his foreign Bank account before the Income Tax Department - As declaration made by the assessee surrendering his undisclosed income representing the amount lying in the overseas Bank account with HSBC Switzerland on 26.09.2011 without initiation of any action or issuance of any notice issued by the Income Tax Department was voluntary showing the bonafide of the assessee The contention as raised by the ld. counsel for the assessee in this regard is that any assessee as per the said Act thus could get away by paying tax @60% on the value of an undisclosed asset located outside India in the year 2015 while the assessee in the present case even after declaring his undisclosed asset located outside India in the year 2011 itself and finally paying tax on such value along with interest thereon as the corresponding income was ultimately charged to tax in his hands in A.Ys. 2006-07 and 2007-08 could not avail the immunity provided in the said Act introduced in 2015. He has contended that the assessee having declared the income on account of undisclosed asset located outside India voluntarily in the year 2011 itself and having paid tax thereon along with interest thus is put in an adverse position as compared to the other assessees who did not make such declaration and finally got the benefit of the Act introduced in 2015. He has contended that going by the spirit of Rule of Equality before law the benefit of immunity provided in the 2015 Act thus should be extended to the assessee and the orders of the ld. CIT(Appeals) cancelling the penalties imposed under section 271(1)(c) are liable to be upheld on this ground also. - Decided against revenue.

Summary

Issues Involved:
1. Validity of penalty orders under section 271(1)(c) of the Income Tax Act, 1961.
2. Whether the declaration made by the assessee regarding the undisclosed foreign bank account was voluntary.
3. Compliance with the procedural requirements for issuing show-cause notices under section 274 of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Penalty Orders under Section 271(1)(c):

The penalties imposed by the Assessing Officer under section 271(1)(c) for the assessment years 2006-07 and 2007-08 were challenged by the assessee. The Assessing Officer had imposed penalties amounting to Rs. 3,76,15,923/- and Rs. 7,29,657/- respectively, based on the undisclosed investment in HSBC, Switzerland. The penalties were imposed at 300% of the tax sought to be evaded. The assessee contended that the penalties were invalid as he had already disclosed the foreign bank account voluntarily before any action or notice was initiated by the Income Tax Department.

2. Voluntariness of the Declaration:

The assessee had made a declaration on 26.09.2011 before the Director General of Investigation, Kolkata, admitting to an undisclosed bank account in HSBC, Switzerland. The assessee stated that the account was closed, and the amount was brought back to India, which was surrendered as undisclosed income for A.Y. 2012-13. The ld. CIT(Appeals) found merit in the assessee's argument, noting that the declaration was made voluntarily before any action or notice by the Department. The penalties were thus cancelled on the grounds that there was no concealment of income or filing of inaccurate particulars by the assessee.

3. Procedural Compliance for Show-Cause Notices under Section 274:

The assessee raised a preliminary issue regarding the validity of the penalty orders based on the show-cause notices issued under section 274. The notices were in printed form without striking off the irrelevant portions, failing to specify whether the penalty was for "furnishing inaccurate particulars of income" or "concealing particulars of such income." The Tribunal, relying on the decisions of the Hon’ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory and SSA’s Emerald Meadows, held that such notices were vague and did not satisfy the requirements of law. Consequently, the penalty orders were deemed invalid due to the improper issuance of show-cause notices.

Conclusion:

The Tribunal upheld the orders of the ld. CIT(Appeals) cancelling the penalties imposed by the Assessing Officer under section 271(1)(c) for both the years under consideration. The penalties were invalidated primarily due to the procedural lapse in issuing show-cause notices under section 274 and the voluntary nature of the assessee's declaration regarding the undisclosed foreign bank account. The appeals filed by the Revenue were dismissed, and the Cross Objections filed by the assessee were allowed.