2024 (5) TMI 433 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - Defective notice u/s 274 - as argued irrelevant portion of the notice has not been struck off and default not clearly mentioned whether it is concealment of income or furnishing of inaccurate particulars of income - HELD THAT - As in the show cause notice u/s. 274 of the Act the AO has not struck out the irrelevant part. It is not spelt out as to whether the penalty proceedings are sought to be levied for furnishing inaccurate particulars of income or concealing particulars of such income . As the show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. Following the decision of Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT we hold that the orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled. Whether Curable defect? - We may also add that the provision of section 292B of the Act cannot cure the basic defect in assumption of jurisdiction and only cure the mistake, defect or omission in return of income, assessment, notice or the proceeding is in substance and effect in conformity with or according to intent and purpose of the Act. As decided in Shri K. Prakash Shetty 2014 (6) TMI 976 - ITAT BANGALORE the provisions of sec.292BB would not come to the rescue of the revenue, when the notice was not in substance and effect in conformity with or according to the intent and purpose of the Act. In our view, the notice issued by the Assessing Officer was not in substance, and effect in conformity with or according to the intent and purpose of the Act, since the Assessing Officer did not specify the charge for which penalty proceedings were initiated and further there was non- application of mind on the part of the Assessing Officer. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of notice issued under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961.
2. Sources of deposits into the assessee's bank account during the demonetization period.

Summary:

Issue 1: Validity of Notice under Section 274 r.w.s. 271(1)(c)

The assessee contested the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, arguing that the notice issued under Section 274 did not specify whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income." The Tribunal noted that the Assessing Officer (AO) did not strike out the irrelevant part in the printed show cause notice, making it unclear why the penalty was being levied. The Tribunal referenced the Karnataka High Court's decision in CIT v. Manjunatha Cotton and Ginning Factory, which mandates that a notice under Section 274 must specifically state the grounds for penalty. The Tribunal held that the defective notice violated principles of natural justice and rendered the penalty orders invalid. Consequently, the penalties imposed for the assessment years 2011-12 to 2015-16 were quashed.

Issue 2: Sources of Deposits During Demonetization Period

For the assessment year 2017-18, the AO treated cash deposits of Rs. 60,12,114/- during demonetization as income and issued an ex-parte assessment order. The assessee claimed that the deposits were business receipts and requested an opportunity to provide supporting evidence. The Tribunal observed that the assessee had not submitted any documentary evidence to support the claim before the NFAC. The Tribunal acceded to the assessee's request for a fresh opportunity to present evidence and remitted the issue back to the AO for fresh consideration. The assessee was directed to cooperate with the department and provide necessary documents explaining the sources of the deposits.

Conclusion:

The appeal concerning the penalty under Section 271(1)(c) was allowed, and the penalties were quashed due to defective notices. The appeal regarding the assessment for the year 2017-18 was partly allowed for statistical purposes, with the matter remanded to the AO for fresh consideration.