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2016 (6) TMI 927 - AT - Income TaxPenalty us/ 271(1)(c) - defective 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 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.
Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961. 2. Validity of the show cause notice under Section 274 of the Income Tax Act. 3. Grounds for imposing penalty: Concealment of income vs. Furnishing inaccurate particulars of income. Detailed Analysis: 1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961 The primary issue in this case revolves around the imposition of a penalty on the assessee under Section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer (AO) had imposed this penalty because the assessee had declared short-term capital gains on the sale of shares as income from business, which led to an increased tax liability. The penalty was imposed due to the change in the head of income from capital gains to business income, which resulted in a higher tax payable by the assessee. 2. Validity of the Show Cause Notice under Section 274 of the Income Tax Act The assessee's primary objection was regarding the validity of the show cause notice issued under Section 274 of the Act. The notice did not clearly indicate whether the penalty was being imposed for "concealing particulars of income" or "furnishing inaccurate particulars of income." The Tribunal found that the show cause notice was defective because it did not specify the grounds on which the penalty was sought to be imposed. The Tribunal referenced the case of Suvaprasanna Bhattacharya vs ACIT, where it was held that a show cause notice must clearly state the grounds for penalty imposition to be valid. 3. Grounds for Imposing Penalty: Concealment of Income vs. Furnishing Inaccurate Particulars of Income The Tribunal noted that the show cause notice issued to the assessee did not strike out the irrelevant part, making it unclear whether the penalty was for "concealing particulars of income" or "furnishing inaccurate particulars of income." The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory had held that a notice under Section 274 should specifically state the grounds for penalty imposition. The Court emphasized that the assessee should be made aware of the specific grounds to contest the proceedings adequately. The Tribunal cited the principles laid down by the Karnataka High Court, which included: - The necessity for the show cause notice to specify whether the penalty is for concealment of income or for furnishing inaccurate particulars. - The requirement for the penalty proceedings to be confined to the grounds stated in the notice. - The invalidity of penalty imposition if the notice is vague or if the penalty is imposed on grounds different from those mentioned in the notice. Conclusion The Tribunal concluded that the show cause notice under Section 274 was defective as it did not specify the grounds for penalty imposition. Consequently, the order imposing the penalty was held to be invalid, and the penalty imposed on the assessee was canceled. The Tribunal did not address other aspects of the merits of the penalty imposition due to this conclusion. Result The appeal of the assessee was allowed, and the penalty imposed was canceled. The order was pronounced in the Court on 01.06.2016.
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