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Facts
The assessee's income tax return for AY 2006-07 was subjected to scrutiny, leading to an assessment under Section 143(3) with additions for undervalued closing stock and unexplained money. Penalty proceedings were initiated under Section 271(1)(c) for both, but the Ld. CIT(A) upheld the penalty only for the unexplained money. The assessee appealed to the ITAT, challenging the validity of the penalty notice.
Held
The Tribunal found the penalty notice issued under Section 274 read with Section 271(1)(c) to be invalid because the Assessing Officer failed to specify the precise charge against the assessee (concealment of income or furnishing inaccurate particulars) by not striking off the irrelevant limb. Relying on High Court precedents, the Tribunal held that such a defective notice cannot sustain a penalty, and thus set aside all penalty proceedings.
Key Issues
Whether a penalty notice issued under Section 274 read with Section 271(1)(c) is invalid if it fails to specifically indicate the charge against the assessee (concealment of income or furnishing inaccurate particulars) by not striking off the inappropriate limb.
Sections Cited
143(3), 271(1)(c), 274
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri Rajesh Kumar&Shri Pradip Kumar Choubey]
ORDER / आदेश Per Pradip Kumar Choubey, JM: This is the appeal preferred by the assessee against order of Commissioner of Income Tax (Appeal)-NFAC, Delhi (hereinafter referred to as the Ld. CIT(A)] dated 13.06.2024 for AY 2006-07.
Brief facts of the case of the assessee are that the assessee filed return of income for the AY 2006-07 declaring a total income of Rs. 9,73,110/-. The case was selected for scrutiny pursuant to the survey operation and an order u/s 143(3) was passed Assessment Year: 2006-07 Fantacy Creations declaring total income of Rs. 54,17,539/-. The matter travelled up to the ITAT and ITAT set aside to the desk of the AO. The set aside assessment was passed on 30.12.2016 assessing the total income of Rs. 19,04,800/- and following two additions were made: i) Addition of Rs. 4,14,175/- on account of under valuation of closing stock ii) Addition of Rs. 4,81,421/- on account of unexplained money.
Penalty proceedings were initiated for concealment of income as well as furnishing inaccurate particulars of income. Penalty order u/s 271(1)(c ) of the act was passed on 30.06.2017 for concealment of particulars of income as well as furnishing inaccurate particulars of income and the amount of total income sought to be evaded in the penalty proceedings was Rs. 8,95,596/-.
The said order of the penalty has been challenged by the assessee before the Ld. CIT(A) wherein the appeal of the assessee has been partly allowed as the Ld. CIT(A) deleted the imposition of penalty u/s 271(1)(c ) on the addition of Rs. 4,14,175/- but upheld the addition of penalty levied on account of addition of Rs. 4,81,451/- made for cash shortage.
Being aggrieved and dissatisfied the assessee preferred an appeal before us.
The Ld. Counsel appeared on behalf of the assessee challenges the impugned order on the ground that notice issued for the initiation of the penalty proceedings is not a valid notice as the AO did not specify the charge against the assessee in this notice as the AO failed to strike off the charge which was not appropriate. The Ld. Counsel submits that the notice reveals that we have concealed the particulars of your income or furnished inaccurate particulars of your income. The Ld. Counsel submits that there is no specific charges against the assessee in the said notice, hence the notice is invalid. He has cited a decision passed by Hon’ble Karnataka High Court in the case of CIT v. Manjunatha Cotton & Ginning Factory [2013] 35 taxmann.com 250 (Kar). He has also cited following judgments:
Assessment Year: 2006-07 Fantacy Creations i) Judgment of Hon’ble Calcutta High Court in the case of PCIT vs. Dr. Murari Mohan Koley in ITAT No. 306 of 2017 GA No. 2968 of 2017 dated 18.07.2018 ii) Judgment of Hon’ble Calcutta High Court in the case of PCIT vs. M/s Basanti Properties Pvt. Ltd. in ITA 14 of 2019 GA 3412 of 2018 dated 26.02.2019 iii)Judgment of Hon’ble Calcutta High Court in the case of PCIT vs M/s SRMB Srijan ltd. in ITAT 8 of 2019 GA 188 of 2019 GA 189 of 2019 dated 26.02.2019
Contrary to that, the Ld. D.R supports the impugned order.
We have perused the notice issued u/s 274 read with Section 271 of the Act which are as follows:
On perusal of the notice there is no denying to this fact that the notices comprised two limbs; one is concealment of particulars of income and other is furnishing inaccurate particulars of such income. We have gone through the judgment cited by the assessee and find that the Hon’ble Calcutta High Court in the case of PCIT vs. Dr. Murari Mohan Koley (supra) has held thus:
Assessment Year: 2006-07 Fantacy Creations “We find that there was no specific charge against the assessee in the notice. Revenue has missed out their opportunity to subject the assessee to the penalty proceeding by not issuing a proper notice. No specific case has been made out by the Revenue as to why the matter should be remanded except that the assessee had not participated properly in the assessment proceedings but for that reason best judgment assessment has been made and the income, which had escaped assessment has been added to the income of the assessee. It was incumbent upon the Rev to make out a specific case for imposition of penalty, on which count the Revenue has failed.”
It appears from the notice that so-called notice issued u/s 274 of the Act does not contain the specific charge against the assessee namely as to whether the assessee was guilty of having concealed particulars of income or having furnished inaccurate particulars of income. The AO has not struck out the irrelevant portion in the show cause notice. Therefore, the show cause notice does not specify the charge against the assessee as to whether the charges is of concealment of particulars of income or furnishing of inaccurate particulars of income. In a case of CIT vs. Manjunatha Cotton & Ginning Factory (supra) the Hon’ble Karnataka High Court came to the conclusion that imposition of penalty on defective show cause notice without specifying the charge against the assessee cannot be sustained. Keeping in view the above decision as well as going over the show cause notice, we find substance in the argument of the ld. Counsel of the assessee that the AO in its notice did not strike out the appropriate one. Accordingly, the issuance of notices u/s 274 read with Section 271(1)(c ) of the Act is declared to be invalid notice, as a result all the proceedings are hereby set aside.
In the result, the appeal filed by the assessee is allowed.
Order is pronounced in the open court on 30th January, 2025