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2018 (3) TMI 135 - AT - Income TaxPenalty u/s 271(1)(c) - addition on unrecorded sales - validity of notice - Held that - The show cause notice issued 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 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 the ld AR 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 case cannot be sustained and the same is directed to be cancelled. - Decided in favour of assessee.
Issues Involved:
1. Whether the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, was valid. 2. Whether the show cause notice under Section 274 of the Act was defective for not specifying the charge against the assessee. 3. The relevance of judicial precedents in determining the validity of the penalty and show cause notice. Issue-Wise Detailed Analysis: 1. Validity of Penalty under Section 271(1)(c): The Assessee, a partnership firm, was subjected to a search and seizure operation under Section 132 of the Income Tax Act, 1961. During the assessment year 2010-11, the Assessee filed a return declaring a total income of ?7,61,060/-. The Assessing Officer (AO) observed unrecorded sales of ?73,601/- and made an addition accordingly, initiating penalty proceedings under Section 271(1)(c) for concealing particulars of income or furnishing inaccurate particulars. The CIT(A) confirmed the AO's order imposing a penalty of ?22,743/-. The Assessee contended that the penalty proceedings are independent of the assessment proceedings and that the penalty should be quashed due to a defective show cause notice under Section 274. 2. Defective Show Cause Notice under Section 274: The Assessee argued that the show cause notice issued under Section 274 did not specify whether the penalty was for concealing particulars of income or furnishing inaccurate particulars. This argument was supported by the decision of the Karnataka High Court in CIT vs. Manjunatha Cotton & Ginning Factory (359 ITR 565), which held that a penalty notice must clearly state the charge against the Assessee. The Tribunal noted that the AO had not struck out the irrelevant portion in the show cause notice, making it unclear whether the penalty was for concealment or inaccurate particulars. The Tribunal referenced the Supreme Court's dismissal of the Revenue's SLP against the Karnataka High Court's decision, reinforcing the requirement for specificity in penalty notices. 3. Judicial Precedents: The Tribunal considered various judicial precedents, including the Karnataka High Court's decision in Manjunatha Cotton & Ginning Factory and the Bombay High Court's decision in CIT vs. Shri Samson Perinchery, which supported the Assessee's position. The Tribunal also reviewed contrary decisions from the Mumbai ITAT, which followed the Bombay High Court's decision in CIT vs. Kaushalya, holding that a mere mistake in the notice language does not invalidate the penalty proceedings. However, the Tribunal preferred the Karnataka High Court's view, which mandates specific charges in the penalty notice, aligning with the principle that where two views exist, the one favorable to the Assessee should be followed. Conclusion: The Tribunal concluded that the show cause notice under Section 274 was defective as it did not specify the exact charge against the Assessee. Consequently, the imposition of the penalty could not be sustained. The Tribunal directed the cancellation of the penalty, allowing the Assessee's appeal. Order: The appeal of the Assessee was allowed, and the penalty imposed by the AO under Section 271(1)(c) was cancelled. The order was pronounced in the Court on 12.01.2018.
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