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2016 (6) TMI 927 - ITAT KOLKATA

2016 (6) TMI 927 - ITAT KOLKATA - TMI - Penalty us/ 271(1)(c) - defective notice - Held 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 [2013 (7) TMI 620 - KARNATAKA HIGH COURT ] we hold that the order imposing penalty has to be held as invalid and consequently penalty imposed is cancelled. - ITA No.2428/Kol/2013 - Dated:- 1-6-2016 - Sh .....

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). 3. The facts and circumstances under which penalty was imposed on the assessee by the AO are as follows : The Assessee is an individual. For A.Y.2008-09 the assessee filed return of income declaring total income of ₹ 12,97,315/-. In the course of assessment proceedings the AO noticed that the assessee had declared short term capital gain on sale of shares of ₹ 12,40,550/-. The AO further noticed that the shares which were sold by the assessee had been held by the assessee as stock .....

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e Assessee consequent to change of head of income, the AO imposed penalty u/s 271(1)(c) of the Act. 4. On appeal by the assessee the CIT(A) confirmed the order of AO. Aggrieved by the order of CIT(A) the assessee has preferred the present appeal before the Tribunal. 5. Before us the primary objection was raised by the ld. Counsel for the assessee. The ld. Counsel for the assessee brought to our notice the show cause notice u/s 274 of the Act before imposing penalty u/s.271(1)( c) of the Act did .....

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the case of Suvaprasanna Bhattacharya vs ACIT vide ITA No.1303/Kol/2010 order dated 06.11.2015 wherein this Tribunal took the view that in the absence of proper indication in the show cause notice as to the ground on which penalty is sought to be imposed, the order imposing penalty is liable to be held as bad in law and liable to be cancelled. The ld. DR relied on the order of CIT(A). 6. We have considered the rival submissions. We find that the show cause notice does not indicate as to whether .....

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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 in .....

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irement 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 and all the orders imposing penalty have to be held as bad in law and liable to be quashed. 8.2 The Hon ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory (supra) has laid down the following principles to be followed in t .....

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ty which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation-1 or in Explanation-1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the .....

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s in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee. 60. Clause (c) deals with two specific offences, that is to say, concealing particulars of incom .....

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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 op .....

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with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable. 61. The Assessing Officer is empowered under the Act to initiate p .....

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11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the firs .....

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penalty for breach of civil obligations or liabilities. c) Willful concealment is not an essential ingredient for attracting civil liability. d) Existence of conditions stipulated in Section 271(1)(c) is a sine 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 conditi .....

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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 not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it i .....

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alty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bona fide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity. o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penal .....

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