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TMI Blog2016 (2) TMI 701X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessee was also subjected to a search as he was part of the said group. Consequent to the search, proceedings u/s 153A of the Act were initiated against the assessee. In respect of A.Y.2007-08 and 2008-09, the assessee filed return of income in response to notice u/s 153A of the Act declaring income of Rs. 6 crores for A.Y.2007-08 and a sum of Rs. 2,54,00,000/- for A.Y.2008- 09. The income offered in the returns filed in response to notice u/s 153A of the Act were brought to tax by the AO and the assessment for the aforesaid assessment years were completed accepting the undisclosed income offered in the return of income filed in response to notice u/s 153A of the Act. AO initiated penalty proceedings against the assessee u/s 271(1) (c) of the Act. 4. In the penalty proceedings the stand taken by the assessee was that the assessee was entitled to immunity provided under Explanation 5A to section 271(1) (c) of the Act. The stand of the assesee was that the disclosure made in the return of income filed u/s 153A of the Act was true and full and disclosure made in good faith and in pursuance of disclosure made u/s 132(4) of the Act. The contention of the assessee did not favour ei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee for "furnishing inaccurate particulars of income" or "concealing particulars of such income" by striking off the irrelevant portion of the printed show cause notice. 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". 8.1. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne qua non for initiation of penalty proceedings under Section 271. e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority. f) Even if there is no specific finding regarding the existence of the conditions mentioned in Section 271(1)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision. g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B). h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner. i) The imposition of penalty is not automatic. j) Imposition of penalty even if the tax liability is admitted is not automatic. k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings." (emphasis supplied) 8.3. 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. 8.4. 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 on the Assessee and allow the appeal by the Assessee. In view of our above conclusions on the issue of defect in show cause notice u/s.274 of the Act, we are not dealing with the other arguments made on merits of the orders imposing penalty on the Assesssee. 9 . In the result, the appeals of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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