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2016 (5) TMI 757 - AT - Income TaxPenalty u/s 271(1)(c) - Held that - 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 as it does not spell out the grounds on which the penalty is sought to be imposed. See Shri Satyananda Achariya Biswas Versus DCIT, Central Circle-Xiii, Kolkata 2015 (12) TMI 1524 - ITAT KOLKATA - Decided in favour of assessee
Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act. 2. Validity of the show cause notice issued under Section 274 of the Act. 3. Satisfaction for initiation of penalty proceedings discernible from the assessment order. Issue-wise Detailed Analysis: 1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act: The Assessee, a partnership firm engaged in the retail business of watches, filed a return declaring a loss of ?1,89,627 for AY 2003-04. The AO initially determined the total income at ?2,06,73,855, which was later revised to ?2,10,70,840. On appeal, CIT(A) reduced the additions, sustaining only ?12,77,461. Despite the reduction, the AO initiated penalty proceedings under Section 271(1)(c) for the sustained additions, which was confirmed by CIT(A). The Assessee appealed to the Tribunal, arguing that the show cause notice did not specify whether the penalty was for "furnishing inaccurate particulars of income" or "concealing particulars of such income." 2. Validity of the Show Cause Notice Issued under Section 274 of the Act: The Tribunal noted that the show cause notice issued under Section 274 did not strike out the irrelevant portion, failing to specify the exact charge against the Assessee. This defect was highlighted by the Assessee, referencing the Karnataka High Court's decision in CIT Vs. Manjunatha Cotton & Ginning Factory, which held that an invalid show cause notice cannot sustain the imposition of penalty. The Tribunal found that the AO's notice did not clarify whether the penalty was for "furnishing inaccurate particulars" or "concealing particulars," rendering it defective. 3. Satisfaction for Initiation of Penalty Proceedings Discernible from the Assessment Order: The Tribunal examined whether the AO's assessment order indicated a prima facie satisfaction that the Assessee had either concealed income or furnished inaccurate particulars. The Tribunal referenced the Delhi High Court's ruling in Ms. Madhushree Gupta, emphasizing that such satisfaction should be discernible from the assessment order. The Tribunal found no indication in the assessment order that the AO believed the Assessee was guilty of either offense. The Tribunal concluded that the initiation of penalty proceedings was not proper, as the satisfaction for such initiation was not evident from the assessment order. Conclusion: The Tribunal, following the principles laid down by the Karnataka High Court in Manjunatha Cotton & Ginning Factory, held that the show cause notice under Section 274 was defective and that the satisfaction for initiating penalty proceedings was not discernible from the assessment order. Consequently, the penalty imposed under Section 271(1)(c) was unsustainable and directed to be cancelled. The Assessee's appeal was allowed, and the penalty was annulled. Order Pronounced: The order was pronounced in the Court on 06.04.2016, allowing the appeal by the Assessee.
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