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2020 (10) TMI 840 - AT - Income TaxPenalty u/s. 271(1)(c) and 271AAB - Defective notice - HELD THAT - In the present case u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 of the Act does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. The plea of assessee which is based on the decisions referred to in the earlier part of this order has to be accepted. We therefore hold that imposition of penalty in the present cases cannot be sustained and the same is directed to be cancelled. The above discussion will equally apply to imposition of penalty u/s.271AAB for AY 2015-16 because in terms of section 271AAAB(3) of the Act, provisions of Sec.274 of the Act are applicable to imposition of penalty u/s.271AAB of the Act also. The argument of the department that the provisions of section 292B of the Act will cure the defect, if any, in the show cause notice cannot be accepted because the non-mentioning of the charge against the assessee in the show cause notice cannot be considered as a mistake, omission or defect, which is in substance and effect in conformity with or according to the intent and purpose of this Act. We therefore hold that the CIT(Appeals) was not right in rejecting the plea of assessee in this regard. We are, therefore, of the view that the penalty imposed in all these assessment years are liable to be cancelled. - Decided in favour of assessee.
Issues Involved:
1. Imposition of penalty under Section 271(1)(c) and Section 271AAB of the Income-tax Act, 1961. 2. Validity of show cause notice under Section 274 of the Act. 3. Application of Explanation 5A to Section 271(1) of the Act. 4. Application of Section 292B of the Act. Detailed Analysis: 1. Imposition of Penalty under Section 271(1)(c) and Section 271AAB The appeals challenged the imposition of penalties under Sections 271(1)(c) and 271AAB of the Income-tax Act, 1961. The penalties were imposed following a search and seizure operation under Section 132 of the Act, which revealed unaccounted cash transactions and investments. The assessee admitted to generating unaccounted cash and offered the undisclosed income to tax in response to notices under Section 153C. The Assessing Officer (AO) initiated penalty proceedings for concealing particulars of income. The CIT(Appeals) upheld the penalties, citing Explanation 5A to Section 271(1), which presumes concealment of income discovered during a search. 2. Validity of Show Cause Notice under Section 274 The assessee contended that the show cause notice issued under Section 274 did not specify the exact charge—whether it was for "concealing particulars of income" or "furnishing inaccurate particulars of income." This argument was based on the Karnataka High Court's decision in the case of Manjunatha Cotton and Ginning Factory, which mandates that the notice must clearly state the grounds for penalty. The ITAT found that the show cause notice in this case was defective as it did not specify the charge, making the penalty proceedings invalid. The ITAT emphasized that the AO must apply his mind to the specific charge against the assessee, and the failure to do so was fatal to the case. 3. Application of Explanation 5A to Section 271(1) Explanation 5A to Section 271(1) raises a presumption of concealment for undisclosed income admitted during a search. The AO and CIT(A) relied on this explanation to justify the penalties. However, the ITAT noted that the show cause notice's defect (not specifying the charge) rendered the penalty proceedings invalid. Therefore, the ITAT did not delve into the merits of applying Explanation 5A in this case. 4. Application of Section 292B The department argued that Section 292B, which allows for curing defects in notices, should apply to the show cause notice under Section 274. However, the ITAT held that the non-mentioning of the specific charge in the notice is not a mere defect but a fundamental flaw that cannot be cured under Section 292B. The ITAT concluded that the CIT(A) erred in rejecting the assessee's plea on this ground. Conclusion The ITAT allowed the appeals, holding that the imposition of penalties under Sections 271(1)(c) and 271AAB could not be sustained due to the defective show cause notice under Section 274. The penalties were directed to be canceled for all assessment years in question. The ITAT did not address the merits of the penalties concerning Explanation 5A, as the decision on the preliminary ground (defective notice) was sufficient to resolve the appeals.
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