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2019 (12) TMI 140 - AT - Income TaxPenalty u/s 271(1)(c) - Defective notice - recording of satisfaction before initiation of penalty proceedings or any time during proceedings - HELD THAT:- Show cause notice issued by the AO u/s 274 r.w.s. 271(1)(C) we find that although, the assessee has challenged the validity of penalty proceedings, in light of non striking of irrelevant portion in the notice u/s 274, but, fact remains that the AO had issued further show-cause notice, dated 19/02/2016, for which the assessee neither filed any explanation nor justified its case in light of Explanation-1 to section 271(1)(c). AO has arrived at proper satisfaction, in respect of additions made towards interest income on fixed deposits at the time of assessment proceedings, where he had initiated penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income leading to concealment of income. We, further noted that the AO had levied penalty u/s 271(1)(c) for furnishing inaccurate particulars of income leading to concealment of income. Once a proper satisfaction has been arrived at before initiation of penalty proceedings or any time during proceedings, then subsequent issue of show-cause notice is a formality to communicate the assessee about initiation of penalty proceeding. In this case, AO had issued one more show-cause notice and also, called upon the assessee to explain why penalty proceedings shall not be initiated for furnishing inaccurate particulars of income, for which no compliance from the assessee. Therefore a proper satisfaction has been arrived at before initiation of penalty proceedings, and then a defect in notice including mere non-striking of irrelevant portion in the notice does not invalidate the penalty proceedings. Although, the assessee has cited certain judicial precedents, including the decision in the case of Mehrjee Cassinath Holdings Pvt.Ltd. vs ACIT [2017 (5) TMI 904 - ITAT MUMBAI] we find that facts of the present case are entirely different from the case laws relied upon by the assessee and hence, are not considered as applicable to the case of the assessee. In the case of M/s. Earthmoving Equipment Services Corporation vs DCIT [2017 (5) TMI 474 - ITAT MUMBAI] had considered an identical issue and held that when, proper satisfaction has been recorded in the assessment order, as well as in the penalty order then mere non striking of notice or vague notice does not invalidate penalty proceedings. Therefore, we are of the considered view that there is no merit in legal arguments taken by the assessee and hence, ground no. 1 and 2 are rejected. Penalty levied in respect of additions made towards interest income earned from fixed deposits - HELD THAT:- The fact that a person/entity carried on business does not lead to inference that all the income received from such persons/entity is assessable under the head income from business. It is the manner in which income is derived is relevant to decide the head of income, but not merely the fact that persons/entity are engaged in the business. If you examine the case of the assessee, it is abundantly clear that the assessee has parked its surplus funds in the banks in form of fixed deposits and earned interest income. Although interest income from fixed deposits is assessable under the head income from other sources, the assessee has treated said interest income as capital receipts and set up against pre-operative expenses without offering interest income for tax. Therefore, we are of the considered view that the assessee has furnished inaccurate particulars of income, in respect of interest income earned from fixed deposits, which warrants levy of penalty u/s 271(1)(c) - assessee has also failed to offer any explanation in response to a show cause notice thereby committed default within the meaning of Explanation-1 to section 271(1)(C) of the I.T.Act, 1961. Therefore, we are of the considered view that there is no error in penalty levied u/s 271(1)(c) and accordingly, the CIT(A) was right in affirmed penalty levied by the Ld. AO. Hence, we are inclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the assessee.
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