2019 (2) TMI 2076 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice u/s 274 - whether the asseessee is guilty of having furnished inaccurate particulars of income or of having concealed particulars of such income ? - HELD THAT - Decision of the Coordinate Bench of this Tribunal rendered in the case of Suvaprasanna Bhattacharya 2015 (12) TMI 43 - ITAT KOLKATA by relying on the decision in the case of CIT Another vs.- Manjunatha Cotton Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT is squarely applicable in the present case and respectfully following the same, we hold that the show-cause notices issued by the AO under section 274 for both the years under consideration not being in accordance with law, the penalty orders passed by the AO in pursuance thereof are liable to be cancelled being invalid. We accordingly uphold the impugned orders of the ld. CIT(Appeals) canceling the penalties imposed by the AO under section 271(1)(c) for both the years under consideration and dismiss both the appeals of the Revenue.

Summary

Issues Involved:
1. Validity of penalty proceedings initiated under section 271(1)(c) of the Income Tax Act.
2. Defective show-cause notices issued under section 274.
3. Application of principles laid down by the Hon’ble Karnataka High Court in the case of CIT & Another vs. Manjunatha Cotton & Ginning Factory.

Detailed Analysis:

1. Validity of Penalty Proceedings under Section 271(1)(c):
The primary issue was the validity of the penalty proceedings initiated by the Assessing Officer (AO) under section 271(1)(c) for the assessment years 2005-06 and 2006-07. The AO had imposed penalties of Rs. 28,52,238/- and Rs. 23,55,910/- respectively, on the basis of undisclosed income determined during a search and seizure action. The ld. Commissioner of Income Tax (Appeals) [CIT(A)] subsequently cancelled these penalties, finding them unsustainable in law and facts. The Revenue appealed against this decision, while the assessee filed Cross Objections.

2. Defective Show-Cause Notices under Section 274:
A significant argument raised by the assessee's counsel was that the show-cause notices issued by the AO were defective. The notices did not specify whether the penalty was for "furnishing inaccurate particulars of income" or "concealing particulars of such income," as required by law. The Tribunal observed that the AO failed to strike off the irrelevant portion in the printed form of the notice, making it unclear which specific charge the assessee was required to respond to.

3. Application of Principles from Manjunatha Cotton & Ginning Factory Case:
The Tribunal referred to the decision of the Hon’ble Karnataka High Court in CIT & Another vs. Manjunatha Cotton & Ginning Factory, which established that a notice under section 274 must clearly state the grounds for imposing a penalty. The court held that using a standard printed form without specifying the exact charge violates principles of natural justice and renders the penalty proceedings invalid. The Tribunal noted that the facts of the present case were similar to those in Suvaprasanna Bhattacharya vs. ACIT, where the penalty was quashed due to defective notices.

Conclusion:
The Tribunal concluded that the show-cause notices issued by the AO were not in accordance with law, making the penalty orders invalid. Consequently, the Tribunal upheld the CIT(A)'s decision to cancel the penalties imposed by the AO for both assessment years. The appeals by the Revenue were dismissed, and the Cross Objections filed by the assessee were deemed infructuous and dismissed accordingly.

Final Order:
The Tribunal dismissed both the appeals of the Revenue and the Cross Objections of the assessee, pronouncing the order in the open Court on February 11, 2019.