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Income Tax Appellate Tribunal (ITAT) Kolkata in a recent judgment has followed Karnataka High Court and held that the show cause notice u/s 274 of the Income Tax Act 1961 was defective as it did not spell out the grounds on which the penalty is sought to be imposed.

Case Details:
ITA No.1303/Kol /2010 AY : 2006-07
Suvaprasanna Bhatacharya (Appellant) vs ACIT (Respondent)
Date of Order: 06-11-2015

Brief Facts of the Case:
The Assessee was a professional artist (painter). The assessee acting on the professional advice believing that sale of paintings being “personal effects” are not chargeable to tax, not declared such sales. However, during the assessment proceedings for AY 2006-07 the Assessing Officer completed the assessment with additions for such sales. Later penalty proceedings u/s 271(1)(c) were initiated for concealment of income by issue of notice u/s 274.

On appeal, the CIT(A) upheld the penalty proceedings.

Before ITAT, the assessee challenged notice issued u/s.274 and submitted that the said notice did not specify as to whether the Assessee was guilty of having “furnished inaccurate particulars of income” or of having “concealed particulars of such income”. He pointed out that the printed show cause notice did not strike out the irrelevant portion viz., “furnished inaccurate particulars of income” or “concealed particulars of such income”.

Important Excerpts from ITAT Judgment

we find that in the show cause notice u/s.274 of the Act the AO has not struck out the irrelevant part. It is therefore not spelt out as to whether the penalty proceedings are sought to be levied for “furnishing inaccurate particulars of income” or “concealing particulars of such income”.

The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory , 359 ITR 565 (Karn) , has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon’ble High court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also held that initiating penalty proceedings on one limb and find the assessee guilty in another limb is bad in law. It was submitted that in the present case,  the aforesaid decision will squarely apply and all the orders imposing penalty have to be held as bad in law and liable to be quashed.

The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory (supra) has laid down the following principles to be followed in the matter of imposing penalty u/s.271(1)(c) of the Act.

“NOTICE UNDER SECTION 274
...................
................Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard pro forma without striking of the relevant clauses will lead to an inference as to non-application of mind.”

The final conclusion of the Hon’ble Court was as follows:-

(a)     ................
....        ................

(p)     Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income

(q)     Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law.

(r)      The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee.

(s)     Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law.

It is clear from the aforesaid decision that on the facts of the present case 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 the Hon’ble 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.

 

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Similar Update:
Notice u/s 274 with only a Tick Mark illegal Read Bangalore ITAT Judgment Click Here >>

ITAT-Printed Show cause notice u/s 274/271(1)(c) defective as it did not striked out/specified if it was for concealment/furnishing inaccurate particulars | 11-11-2015 |