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2016 (6) TMI 838 - AT - Income TaxPenalty u/s 271(1)(c) - validity of show cause notice - Held that - 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 the Hon ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory (2013 (7) TMI 620 - KARNATAKA HIGH COURT ) we hold that the orders imposing penalty in the assessment year under consideration has to be held as invalid and consequently penalty imposed is cancelled. - Decided in favour of assessee
Issues Involved:
1. Confirmation of penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961. 2. Validity of the show cause notice issued under Section 274 of the Income Tax Act, 1961. 3. Specificity of the charge in the penalty proceedings. Detailed Analysis: Issue 1: Confirmation of Penalty Imposed Under Section 271(1)(c) of the Income Tax Act, 1961 The primary issue in this appeal was whether the Commissioner of Income Tax (Appeals) [CIT(A)] erred in confirming the penalty imposed by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was levied for the concealment of income and furnishing inaccurate particulars of income. The AO had added income to the assessee's total income based on non-disclosure of interest income earned on Fixed Deposit Receipts (FDR) amounting to ?19,022 and a claim of bogus purchases amounting to ?18,61,658. The AO imposed a penalty at 200% of the tax sought to be evaded. Issue 2: Validity of the Show Cause Notice Issued Under Section 274 of the Income Tax Act, 1961 The assessee contended that the show cause notice issued under Section 274 of the Act was defective as it did not specify whether the penalty was for "furnishing inaccurate particulars of income" or "concealing particulars of such income." The notice did not strike out the irrelevant portion, leading to ambiguity. The assessee referred to the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton & Ginning Factory, which held that such a notice is invalid. The court emphasized that the notice should specifically state the grounds for the penalty to satisfy the principles of natural justice. Issue 3: Specificity of the Charge in the Penalty Proceedings The tribunal found that the AO had not specified in the show cause notice whether the penalty was for "furnishing inaccurate particulars of income" or "concealing particulars of such income." This lack of specificity was deemed a violation of the principles of natural justice. The Hon'ble Karnataka High Court's decision in the Manjunatha Cotton and Ginning Factory case laid down that the notice under Section 274 should clearly state the grounds for the penalty. The tribunal concluded that the penalty proceedings were initiated on one ground, but the penalty was imposed on another, which is not permissible. Conclusion: The tribunal held that the show cause notice issued under Section 274 was defective and did not meet the legal requirements. Consequently, the penalty imposed under Section 271(1)(c) of the Act was invalid. The tribunal allowed the assessee's appeal and canceled the penalty orders. The decision emphasized the importance of specificity and clarity in penalty notices to uphold the principles of natural justice. The order was pronounced in the open court on 15/06/2016.
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