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2016 (4) TMI 1124 - AT - Income TaxPenalty u/s.271(1)( c ) - Held that - In the present case satisfaction for initiation of penalty proceedings u/s.271(1)( c) of the Act is not discernible from the order of assessment. The show cause notice u/s.274 of the Act is also defective. The same is also enclosed as Annexure A to this order. Following the decision referred to above, we hold that the penalty imposed on the Assessee u/s.271(1)( c) of the Act cannot be sustained and the same is directed to be cancelled. Accordingly, the additional ground raised by the assessee in all the four appeals are allowed. The other ground raised by the revenue and assessee are dismissed as infructuous. - Decided in favour of assessee.
Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961. 2. Reduction of penalty from 300% to 100% by the CIT(A). 3. Validity of penalty proceedings due to lack of specific satisfaction and defective show cause notice. Detailed Analysis: 1. Imposition of Penalty under Section 271(1)(c): The appeals concern the imposition of penalties by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961, for the assessment years 2006-07 and 2007-08. The penalties were imposed following search and seizure operations under Section 132(1) of the Act, which revealed undisclosed income and bogus transactions. The AO levied penalties at 300% of the tax on the additions made during the search assessments. The CIT(A) confirmed the imposition of penalties but reduced them from 300% to 100%. 2. Reduction of Penalty from 300% to 100% by the CIT(A): The CIT(A) reduced the penalty from 300% to 100% of the tax, citing Explanation 5A to Section 271(1)(c) of the Act. The CIT(A) held that any undisclosed income found or declared after the date of search initiated under Section 132 of the Act on or after 1.6.2007 would attract penalty if not declared in the return filed under Section 139(1). The CIT(A) deemed that the assessee concealed particulars of income or furnished inaccurate particulars, thus justifying the penalty, albeit at a reduced rate. 3. Validity of Penalty Proceedings Due to Lack of Specific Satisfaction and Defective Show Cause Notice: The assessee raised an additional ground, arguing that the AO did not specify the limb of Section 271(1)(c) violated by the assessee in the penalty notice issued under Section 274 read with Section 271. The AO also failed to record satisfaction regarding whether the assessee concealed income or furnished inaccurate particulars. The Tribunal admitted this additional ground, noting that the AO's satisfaction was not discernible from the assessment order and that the show cause notice was defective for not striking out irrelevant portions. The Tribunal relied on several judicial precedents, including the Hon'ble Karnataka High Court's decision in CIT Vs. Manjunatha Cotton & Ginning Factory, which held that a penalty notice must specify the exact charge. The Tribunal also referred to the Hon'ble Supreme Court's decision in MAK Data (P) Ltd. Vs. CIT, emphasizing that the AO must arrive at a prima facie satisfaction during the assessment proceedings regarding the concealment of income or furnishing of inaccurate particulars. The Tribunal concluded that the penalty proceedings were invalid due to the lack of specific satisfaction in the assessment order and the defective show cause notice. Consequently, the Tribunal canceled the penalties imposed on the assessee under Section 271(1)(c) of the Act. Conclusion: The appeals of the assessee were allowed, and the appeals of the revenue were dismissed. The Tribunal held that the penalty proceedings were invalid due to the lack of specific satisfaction by the AO and the defective show cause notice, leading to the cancellation of penalties imposed under Section 271(1)(c) of the Income Tax Act, 1961.
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