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Thursday, 16 June 2016 12:57

Show Cause Notice u/s.274 is Defective if it Does Not Strike Out as to Whether the Penalty is Sought to be Levied on is for “Furnishing Inaccurate Particulars of Income” or “Concealing Particulars of Such Income” - Kolkata Tribunal Featured

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Defective Notice u/s 274 Defective Notice u/s 274

Show Cause Notice Under Section 274 is Defective if Irrelevant Part are Not Struck Out

Show cause notice u/s.274 of the Act which is in a printed form does not strike out as to whether the penalty is sought to be levied on the for “furnishing inaccurate particulars of income” or “concealing particulars of such income”. On this aspect, 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”. Imposition of penalty on the basis of such invalid show cause notice cannot be sustained.

Facts

1. Assessee is a co-operative society and engaged in the business of contracting activity.

2. During the course of assessment proceeding, Assessing Officer has made the addition to the total income of assessee on account of following:-

i) Non disclosure of interest income earned on the FDR of Rs.19,022/-

ii) Claim of bogus purchases for Rs.18,61,658/-

3. At the time of assessment, AO initiated the penalty proceedings u/s. 271(1)(c) for the concealment of income in relation to non-disclosure of income from FDR and for the bogus purchase on account of furnishing inaccurate particulars of income

4. Finally, AO imposed the penalty by way of passing order dated 21.01.2013 @ 200% of the tax sought to be evaded

5. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who confirmed the action of AO

6. Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before ITAT

7. Honb. ITAT deleted the penalty u/s 271(1)(c)

Submission of Assessee

Assessee drew attention to the show cause notice issued u/s.274 of the Act before imposing penalty and submitted that the said notice does not specify as to whether the Assessee is guilty of having “furnished inaccurate particulars of income” or of having “concealed particulars of such income”. He submitted that the two additions were made in the assessment order. For one addition the penalty was initiated on account of concealment of income and second addition it was initiated for furnishing of inaccurate particulars of income. But the notice issued under section 274 does not spell out the specific charge for the addition made by the AO. He further pointed out that the printed show cause notice does not strike out the irrelevant portion viz., “furnished inaccurate particulars of income” or “concealed particulars of such income”. He also pointed out that the order passed by the AO imposing the penalty does not spell out specific charge but just recorded that tax on penalty under section 271(1)(c) of the Act is computed. He drew attention to a decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 218 Taxman 423 (Kar.) wherein it was held that if the show cause notice u/s.274 of the Act does not specify as to the exact charge viz., whether the charge is that the Assessee has “furnished inaccurate particulars of income” or “concealed particulars of income” by striking out the irrelevant portion of printed show cause notice, than the imposition of penalty on the basis of such invalid show cause notice cannot be sustained. Reference was also made to several judicial pronouncements. In particular, attention was drawn to a decision of the Hon’ble Supreme Court in the case of Price Waterhouse Coopers Pvt.Ltd. Vs. CIT 348 ITR 306 (SC) wherein it was held inadvertent errors in the return of income filed cannot be the basis to impose penalty u/s.271(1)(c) of the Act. 

Adjudication

We have given a very careful consideration to the rival submissions. The facts go to show that the AO came to know that the Assessee had not disclosed the interest income earned on the FDR and claimed the bogus purchases. The next argument that the show cause notice u/s.274 of the Act which is in a printed form does not strike out as to whether the penalty is sought to be levied on the for “furnishing inaccurate particulars of income” or “concealing particulars of such income”. On this aspect, 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”....

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 in the case of Manjunatha Cotton and Ginning Factory (supra) we hold that the orders imposing penalty in the assessment year under consideration has to be held as invalid and consequently penalty imposed is cancelled. For the reasons given above, we hold that levy of penalty in the present case cannot be sustained. We, therefore, cancel the orders imposing penalty u/s 271(1)(c) of the Act on the assessee and this ground of the assessee’s appeal is allowed.

Cases Referred to

1. CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565 (Karn)

2. Price Waterhouse Coopers Pvt.Ltd. Vs. CIT 348 ITR 306 (SC)

3. Ashok Pai 292 ITR 11

4. MANU ENGINEERING 122 ITR 306

5. VIRGO MARKETING 171 Taxman 156

Additional Info

Read 17491 times Last modified on Thursday, 05 January 2017 21:32
Amit

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1 comment

  • Comment Link Satish Patil Friday, 18 August 2017 23:54 posted by Satish Patil

    I am Satish a partner in our family business since 1932, we are traders, recently search took place and declared 5.5 crores on excess stocks,assessment was also over in Nov 2016,received a correct show cause notice 274, as undisclosed stock. but in assessment order after some rectification recd assessment order with penalty workings,
    In penalty workings in concluding part AO written here given below
    Tax sought to have been evaded
    Income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income.
    I have gone for appeal in cit (a)
    I have already given in my reply to cit that it is a defective order lavy of penalty is invalid.. 271(1)(C)
    Now what to do ?

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