Show cause notice limits penalty powers; reasonable cause protected the assessee and Section 78 penalty failed.

A penalty under the Finance Act, 1994 could not be sustained where it was not proposed in the show cause notice, because the notice is the foundation of the proceedings and a new penalty cannot be introduced in revision under Section 84. On the facts stated, a Government undertaking had paid the tax with interest, the delay was explained, and no material showed deliberate evasion; therefore, the protection under Section 80 applied on account of reasonable cause. The penalty under Section 78 was thus unsustainable, while the restored penalty under Section 76 was not interfered with.

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Issues: Whether the penalty under Section 78 of the Finance Act, 1994 could be sustained when it was not proposed in the show cause notice, and whether the penalty under Section 76 of the Finance Act, 1994 was liable to be interfered with in view of reasonable cause and absence of intent to evade tax.

Analysis: The show cause notice is the foundation of the proceedings, and a penalty not proposed therein cannot be validly imposed in revisionary exercise under Section 84 of the Finance Act, 1994. The Assessee was a Government undertaking, had deposited the tax with interest, and the delay stood explained. On these facts, the statutory protection under Section 80 of the Finance Act, 1994 was attracted because reasonable cause was shown and there was no material indicating deliberate evasion.

Conclusion: The penalty under Section 78 of the Finance Act, 1994 was not sustainable, and the restored penalty under Section 76 of the Finance Act, 1994 was also not liable to be interfered with. The appeal failed.

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