2016 (11) TMI 1030 - AT - Income Tax

Invalid Penalty Proceedings Due to Defective Notice | Penalty Cancelled for Assessment Years | Assessee Appeals Allowed

Vaibhav Tulsyan Versus I.T.O Ward 29 (4), Kolkata

The Tribunal concluded that the penalty proceedings were invalid due to a defective show cause notice that did not specify the grounds for the penalty. As ... Penalty u/s. 271(1)(c) - AO failed to cut the irrelevant portion of the printed Show cause notice - assessee contended that, the said notice is not clear whether it was issued for furnishing of inaccurate particulars of income or concealment of particulars of such income - Held that:- In the present case the AO failed to strike out the irrelevant portion in the said show cause notice, respectfully following the order above, we cancel the penalty levied u/s. 271(1)(c) by the Assessing Officer as confirmed by the CIT-(A) for both the assessment years under consideration. Having held that the notice issued by the AO U/Sec 274 r/w Sec 271(1)(c) of the Act during the course of penalty proceedings is not in conformity with the relevant provisions of the Act, we are of the view that Section 292B can not come to the rescue of the Revenue and the reliance of the Ld.DR on the said provision is clearly misplaced. Therefore, preliminary issue as raised by the assessee by way of additional ground for both the assessment years 2006-07 & 2007-08 are allowed, in view of the same the other grounds raised requires no adjudication, therefore, all are dismissed. Issues Involved:1. Legality of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.2. Validity of the show cause notice issued under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961.3. Applicability of Section 292B to rectify defects in the penalty notice.Detailed Analysis:1. Legality of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act, 1961:The appellant assessee challenged the penalty imposed under Section 271(1)(c) for the assessment years 2006-07 and 2007-08. The penalty was confirmed by the CIT(A) based on the additional income disclosed by the assessee during the search and seizure operation conducted under Section 132 of the Act. The CIT(A) held that the additional income disclosed was to cover omissions and mistakes in the seized documents, thus justifying the penalty under Explanation 5A of Section 271(1)(c).2. Validity of the Show Cause Notice Issued under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961:The assessee contended that the notice issued under Section 274 read with Section 271 of the Act was defective as it did not specify whether the penalty was for 'concealment of income' or 'furnishing inaccurate particulars of income.' The Tribunal admitted this additional ground of appeal, recognizing it as a legal issue with all necessary facts already on record. The Tribunal found that the Assessing Officer (AO) failed to strike out the irrelevant portion of the printed show cause notice, making it unclear whether the penalty was for concealment or furnishing inaccurate particulars. This defect rendered the notice invalid, as per the precedent set by the Hon'ble Karnataka High Court in CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn).3. Applicability of Section 292B to Rectify Defects in the Penalty Notice:The Revenue argued that any mistake in the penalty notice could be rectified under Section 292B of the Act. However, the Tribunal held that Section 292B could not rescue the Revenue in this case. The Tribunal emphasized that the notice must specifically state the grounds for penalty to ensure the assessee's right to contest the proceedings and meet the case of the Department. The Tribunal followed the principles laid down by the Hon'ble Karnataka High Court, which stated that a vague notice offends the principles of natural justice and cannot sustain a penalty.Conclusion:The Tribunal concluded that the penalty proceedings initiated by the AO and confirmed by the CIT(A) were invalid due to the defective show cause notice. The irrelevant portions of the notice were not struck out, failing to specify whether the penalty was for concealment of income or furnishing inaccurate particulars. Consequently, the Tribunal canceled the penalty imposed for both assessment years 2006-07 and 2007-08. The Tribunal also dismissed other grounds raised by the assessee as they required no further adjudication.Result:The appeals of the assessee were allowed, and the penalty orders were canceled. The judgment was pronounced in open court on 27/05/2016.