2016 (6) TMI 360 - AT - Wealth-tax

Penalty on the assessee u/s 18(1)(c) of the Wealth Tax Act - Held that - The show cause notice u/s. 18(2) 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 the Hon ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 2013 (7) TMI 620 - KARNATAKA HIGH COURT we hold that the order imposing penalty has to be held as invalid and consequently penalty imposed is cancelled. - Decided in favour of assessee

Issues Involved:
1. Imposition of penalty under Section 18(1)(c) of the Wealth Tax Act, 1957.
2. Validity of the show cause notice under Section 18(2) of the Wealth Tax Act.
3. Legal requirements for a valid penalty notice under Section 274 of the Income Tax Act, 1961.

Detailed Analysis:

1. Imposition of Penalty under Section 18(1)(c) of the Wealth Tax Act, 1957:
The primary issue in this case was the imposition of a penalty on the assessee under Section 18(1)(c) of the Wealth Tax Act, 1957. The assessee owned property that was sold during the previous year relevant to A.Y. 2008-09. The Assessing Officer (AO) initiated proceedings under Section 17 of the Act, leading to the assessee filing a return of wealth disclosing net wealth of ?1,30,47,125/-. The AO accepted the return but initiated penalty proceedings under Section 18(1)(c) for alleged concealment or furnishing of inaccurate particulars of wealth. The penalty was confirmed by the Commissioner of Wealth Tax (Appeals) [CWT(A)], leading to the present appeal.

2. Validity of the Show Cause Notice under Section 18(2) of the Wealth Tax Act:
The assessee's counsel argued that the show cause notice issued by the AO was defective as it did not specify whether the penalty was for "concealing particulars of wealth" or "furnishing inaccurate particulars of wealth." The Tribunal noted that the AO had not indicated the specific section under which the penalty was sought to be levied. The Tribunal referenced the case of Suvaprasanna Bhattacharya vs ACIT, where it was held that a penalty notice must clearly state the grounds on which the penalty is sought to be imposed. The Tribunal found that the show cause notice in the present case was similarly defective.

3. Legal Requirements for a Valid Penalty Notice under Section 274 of the Income Tax Act, 1961:
The Tribunal referred to the principles laid down by the Karnataka High Court in CIT & Anr. v. Manjunatha Cotton and Ginning Factory, which emphasized that a notice under Section 274 must specifically state whether the penalty is for "concealment of income" or "furnishing inaccurate particulars of income." The Tribunal highlighted that a printed form without striking out the irrelevant parts does not satisfy the legal requirement. The Karnataka High Court's decision also stated that initiating penalty proceedings on one ground and finding the assessee guilty on another is not permissible. The Tribunal concluded that the defective notice violated principles of natural justice, rendering the penalty order invalid.

Conclusion:
The Tribunal held that the show cause notice issued under Section 18(2) was defective as it did not specify the grounds for the penalty. Consequently, the penalty order was deemed invalid and was cancelled. The Tribunal did not address other aspects of the penalty on merits due to this conclusion. The appeal of the assessee was allowed, and the order was pronounced in court on 01.06.2016.

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