2016 (2) TMI 1000 - AT - Income Tax

Invalidation of Penalty Orders due to Defective Show Cause Notice

Shri Deepak Kumar Patwari Versus - A.C.I.T., Central Circle-X, Kolkata

The Tribunal held that the show cause notice under Section 274 was defective as it did not specify the grounds for imposing the penalty. Relying on a ... Penalty u/s 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 CIT & Anr. v. 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. 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 we have already seen that the Hon’ble Karnataka High Court in the decision referred to earlier view the show cause notice and the reasons mentioned in the show cause notice are part of the process of the natural justice and the defect in such notice cannot be overlooked. In view of the aforesaid decision we do not find any infirmity in the arguments advanced by the learned AR before us. Thus we hold that levy of penalty in the present case cannot be sustained. - Decided in favour of assessee. Issues Involved:1. Validity of the penalty imposed under Section 271(1)(c) of the Income Tax Act.2. Adequacy of the show cause notice under Section 274 of the Income Tax Act.3. Applicability of Section 292B of the Income Tax Act to cure defects in the show cause notice.Detailed Analysis:Issue 1: Validity of the penalty imposed under Section 271(1)(c) of the Income Tax ActThe primary issue in these appeals was the imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961. The Assessee, an individual, was subjected to a search operation under Section 132(1) of the Act. In response to the notice under Section 153A, the Assessee declared additional income for the assessment years 2007-08, 2008-09, and 2009-10. The Assessing Officer (AO) initiated penalty proceedings under Section 271(1)(c), holding that the Assessee had concealed particulars of income. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the AO's order. Both the AO and CIT(A) believed that the Assessee would not have declared the additional income but for the search operation.Issue 2: Adequacy of the show cause notice under Section 274 of the Income Tax ActThe Assessee's counsel argued that the notice under Section 274 did not specify whether the penalty was for 'furnishing inaccurate particulars of income' or 'concealing particulars of such income.' The Tribunal noted that the AO had not struck out the irrelevant part in the printed show cause notice, making it unclear whether the penalty proceedings were for furnishing inaccurate particulars or concealing income. The Tribunal referred to the Karnataka High Court's decision in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, which held that the notice under Section 274 should specifically state the grounds for imposing the penalty. The Court emphasized that initiating penalty proceedings on one limb and finding the Assessee guilty on another is bad in law.Issue 3: Applicability of Section 292B of the Income Tax Act to cure defects in the show cause noticeThe Department's representative argued that any defect in the show cause notice could be cured under Section 292B of the Act. However, the Tribunal rejected this argument, stating that Section 292B could not cure the basic defect in the assumption of jurisdiction. The Tribunal emphasized that the show cause notice and the reasons mentioned therein are part of the process of natural justice, and any defect in such notice cannot be overlooked.Conclusion:The Tribunal held that the show cause notice under Section 274 was defective as it did not spell out the grounds on which the penalty was sought to be imposed. Following the Karnataka High Court's decision, the Tribunal declared the penalty orders invalid and canceled the penalties imposed on the Assessee. The Tribunal also noted that Section 292B could not cure the defect in the show cause notice. Consequently, the appeals by the Assessee were allowed, and the penalty orders were canceled.Order Pronounced:The appeals of the Assessee were allowed, and the orders imposing penalties were canceled. The judgment was pronounced in the court on 03.02.2016.