TMI Blog2023 (7) TMI 241X X X X Extracts X X X X X X X X Extracts X X X X ..... ate bench in the assessee s group company M/s. New Horizon Private Limited [ 2019 (9) TMI 859 - ITAT KOLKATA ] wherein the facts were identical had affirmed the order passed by the CIT(A) which attained finality and held that no penalty could be levied under Section 271 AAB of the Act. After taking note of the auditor s report as well as stock inspection report, the tribunal found that such inspection report was prepared at the instance of the management as a matter of internal control and the same was drawn up much prior to the date of search. Tribunal has made elaborate examination of the factual position and granted relief to the assessee correctly. Defective notice u/s 274 - On a perusal of the notice, we find that none of the particulars which are required to be mentioned in the notice have been disclosed. In fact, the relevant columns have been left blank. The question would be whether penalty proceedings could have been initiated pursuant to such a notice and was the notice in accordance with law. As decided in Food Corporation of India Limited Versus State of Punjab and Others [ 2000 (12) TMI 911 - SUPREME COURT ] vague and unreasoned notice will not provide r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estioning the correctness of the order passed by the Commission of Income Tax (Appeals), 21 Kolkata (CIT(A)) dated 04.07.2017 deleting the penalty levied on the assessee under Section 271 AAB of the Act. The Assessing Officer while completing the assessment for the Assessment Year under consideration, AY 2015-16 had issued a show-cause notice to the assessee calling upon them to explain as to why the under-valuation of physical stock of Rs. 10.75 crore deducted during the course of search in respect of such main companies in the group namely New Horizon Limited and Industrial Safety Products Private Limited should not be treated as suppression of profit made by the assessee during the year under consideration and added back to the total income of the assessee. The assessee stated that the excess stock found on the physical verification is related to the company amounting to Rs. 6,04,95,912/- and have been properly accounted for in the books for Financial Year 2014-15 and the same has also been disclosed in the disclosure petition dated 06.05.2015, the excess stock found during the course of physical verification has been duly accounted and hence, there is no question of suppression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contention objection the validity of the initiation of the penalty proceedings by issuance of notice under Section 274 read with Section 271 of the Act and the Tribunal while considering the order passed by the CIT(A) did not examine the validity of the initiation of the penalty proceedings on the ground that on facts the Tribunal had confirmed the order passed by the CIT(A) and therefore, considering the validity of the initiation of the penalty proceedings is only an academic exercise and therefore, did not adjudicate the same separately. The assessee has filed the cross-objection objecting to that portion of the order by raising the following substantial questions of law: A. For that the purported penalty proceedings under Section 271, 271AAB and 274 of the Income Tax Act, 1961 for the Assessment Year 2015-16, by penalty notice dated 31st March 2016 under Section 271/274 of the said Act were and are vague, unspecific and invalid as it did not disclose any satisfaction of the Assessing Officer and any of the relevant provision of the said Act. B. For that the purported penalty notice was issued without application of mind and mechanically and did not fulfill and sati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts were identical and the tribunal by order dated 28.08.2019 had affirmed the order passed by the CIT(A) in the case of New Horizon Limited which order had attained finality and held that no penalty could be levied under Section 271 AAB of the Act. 8. The tribunal also examined the correctness of the submission of the revenue that the excess stock found was undisclosed income of the assessee on account of the admission made by the assessee s Director in a statement under Section 132 (4) that it was not recorded in the books of accounts at the time of search. The tribunal noted that the assessee is a body corporate who is required to maintain and prepare its accounts in conformity with the provisions of the Companies Act. The accounts are required to be audited and the auditors of the Company is required to furnish his report in the manner prescribed in Section 227 of the Companies Act, 1956 and the rules made thereunder. 9. Referring to the auditor s report, the tribunal held that the auditor has to certify as to whether the physical verification of the inventory conducted by the Company at reasonable intervals and whether the procedures followed are reasonable and adequa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... state the reasons of the grounds, the notice was held to be vague. 12. In Amrit Food Versus Commissioner of Central Excise, Uttar Pradesh 2005 (190) ELT 433 (SC), it was held that the assessee should be put on notice as to the exact nature of contravention for which the assessee was liable to be proceeded against. 13. In Commissioner of Income-tax, Bangalore Versus SSA'S Emerald Meadows (2016) 73 Taxmann.com 241 (Kar), the High Court of Karnataka following the decision in Commissioner of Income Tax Versus Manjunatha Cotton and Ginning Factory 35 Taxmann.com 250 (Kar) held that the imposition of penalty under Section 271(1)(c) of the Act is bad in law and invalid for the reasons where the show cause notice under Section 274 of Act did not specify the charge against the assessee as to whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. The said decision of the High Court of Karnataka was affirmed by the Hon ble Supreme Court in the decision reported in (2016) 73 Taxmann.com 248 (SC). On the same lines it is the decision of this court in Principal Commissioner of Income Tax Central - 2, Kolkata Versus Br ..... X X X X Extracts X X X X X X X X Extracts X X X X
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