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2017 (6) TMI 483

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..... from carrying on that business by the order passed by SEBI in April 2001. The assessee challenged the said order before the Securities Appellate Tribunal and later on before Hon'ble Supreme Court but could not win the case. Hon'ble Supreme Court finally passed the order in May 2007 i.e. during the financial year relevant to assessment year under consideration, wherein it confirmed the order passed by SEBI. The assessee claimed following expenses as deduction:- Sr. No. Expenditure Head(s) Amount (Rs.) 1 Operating other business expenses 54,59,287 2 Depreciation 1,22,049 3 Share trading loss 98,417 Total 56,79,753 4. In the assessment proceedings, the Assessing Officer disallowed the said claim by holding that the assessee is not entitled to carry on its business and hence no expenditure is allowable. Thereafter the Assessing Officer initiated penalty proceedings and held that the assessee had furn .....

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..... No. 2187/Mum/2014 dated 21.12.2016). For the sake of convenience, we extract below the relevant observations made and the decision taken by the Coordinate Bench:- 9. We have heard the rival contentions on this legal issue and perused the record. We have gone through the notice issued by the AO for initiating the penalty proceedings. For the sake of convenience, the scanned copy of the notice is given below:- Whereas in the course of proceedings before me for the assessment year 2009-10 it appears to be that you :- *have without reasonable cause failed to furnish me return of income which you were required to furnish by a notice given under section 22(1)/22(2)/34 of the Indian Income-tax Act, 1922 or which you were required to furnish under Section 139( 1) or by a notice under Section 139(2)/148 of the Incometax Act, 1961, No._____ dated_____ or have without reasonable cause failed to furnish it within the time allowed and the manner required by the said Section 139( 1)or by such notice. have without reasonable cause failed to comply with a notice under Section 22(4)/23(2) of the Indian Income tax Act. 1922 or under Section 142(1)/143(2) of the Indian Income- .....

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..... urnished inaccurate particulars of income. The Hon ble Supreme Court has clarified in the case of Reliance petro products (322 ITR 158) has clarified that the observations made by it in the case of Dilip N Shroff with regard to mens rea alone have been overruled in Dharmendra Textile processors (306 ITR 277), meaning thereby that the above said observations made by the Hon ble Supreme Court in the case of Dilip N Shroff shall continue to prevail. 11. Hence, we are of the view that the application of mind on the part of the assessing officer at the time of issuing notice for initiation of penalty is a mandatory requirement and the nonapplication of mind would vitiate the penalty proceedings. We notice that the Hon ble Bombay High Court has also expressed identical view in the case of Smt. Kaushalya and Others (supra), on which the revenue has placed heavy reliance. In that case also, it was contended that the AO has not indicated the appropriate charge for which the penalty proceedings were initiated. The Hon ble Bombay High Court has expressed the following view:- The issuance of notice is an administrative device for informing the assessee about the proposal to levy .....

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..... n the petitioner was called upon to show cause why a penalty should not be imposed. Even in the counter-affidavit filed by the second respondent, he has not stated for what specific violation he issued it. It is not that it would have saved his action. Apparently, exhibit P-2 is a whimsical notice issued to an assessee without intending anything. 13. No doubt, there can exist a case where vagueness and ambiguity in the notice can demonstrate nonapplication of mind by the authority and/or ultimate prejudice to the right of opportunity of hearing contemplated under section 274. Take for example; the notice dated March 28, 1972, for the assessment year 1967-68. This show-cause notice was issued even before the assessment order was made. The assessee had no knowledge of the exact charge of the Department against him. In the notice, not only there is use of the word or between the two groups of charges but there is use of the word deliberately . The word deliberately did not exist in section 271(1)(c) when the notice was issued. It is worthwhile recalling that the said word was omitted by the Finance Act, 1964, with effect from April 1, 1964, and the Explanation was added. T .....

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..... 1967-68 seems to be fully justified. In the instant case also, we are of the view that the AO has issued a notice, that too incorrect one, in a routine manner. Further the notice did not specify the charge for which the penalty notice was issued. Hence, in our view, the AO has failed to apply his mind at the time of issuing penalty notice to the assessee. 13. The Ld D.R submitted that the assessee has participated in the penalty proceedings and hence the error, if any, that has occurred would be cured in view of the provisions of sec. 292B/292BB of the Act. Opposing the said contention, the Ld A.R placed reliance on the decision rendered by the Bangalore bench of Tribunal in the case of Shri K Prakash Shetty (supra), wherein it was held that the provisions of sec. 292BB would not come to the rescue of the revenue, when the notice was not in substance and effect in conformity with or according to the intent and purpose of the Act. In our view, the notice issued by the AO, which is extracted above, was not in substance and effect in conformity with or according to the intent and purpose of the Act, since the AO did not specify the charge for which penalty proceedings wer .....

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