Penalty under Section 271(1)(c) cancelled due to defective notice under Section 274 failing to specify grounds

ITAT Bangalore held that penalty u/s 271(1)(c) was invalid due to defective notice u/s 274. The Assessing Officer failed to strike out irrelevant portions and did not specify whether penalty was for concealment of income or furnishing inaccurate particulars. Following precedent, the tribunal ruled the show cause notice was fundamentally defective as it failed to specify grounds for penalty imposition. Section 292B cannot cure such jurisdictional defects involving non-application of mind. Penalty cancelled in favour of assessee.

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Issues Involved:
1. Validity of notice issued under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961.
2. Sources of deposits into the assessee's bank account during the demonetization period.

Summary:

Issue 1: Validity of Notice under Section 274 r.w.s. 271(1)(c)

The assessee contested the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, arguing that the notice issued under Section 274 did not specify whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income." The Tribunal noted that the Assessing Officer (AO) did not strike out the irrelevant part in the printed show cause notice, making it unclear why the penalty was being levied. The Tribunal referenced the Karnataka High Court's decision in CIT v. Manjunatha Cotton and Ginning Factory, which mandates that a notice under Section 274 must specifically state the grounds for penalty. The Tribunal held that the defective notice violated principles of natural justice and rendered the penalty orders invalid. Consequently, the penalties imposed for the assessment years 2011-12 to 2015-16 were quashed.

Issue 2: Sources of Deposits During Demonetization Period

For the assessment year 2017-18, the AO treated cash deposits of Rs. 60,12,114/- during demonetization as income and issued an ex-parte assessment order. The assessee claimed that the deposits were business receipts and requested an opportunity to provide supporting evidence. The Tribunal observed that the assessee had not submitted any documentary evidence to support the claim before the NFAC. The Tribunal acceded to the assessee's request for a fresh opportunity to present evidence and remitted the issue back to the AO for fresh consideration. The assessee was directed to cooperate with the department and provide necessary documents explaining the sources of the deposits.

Conclusion:

The appeal concerning the penalty under Section 271(1)(c) was allowed, and the penalties were quashed due to defective notices. The appeal regarding the assessment for the year 2017-18 was partly allowed for statistical purposes, with the matter remanded to the AO for fresh consideration.

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