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Akanksha Viniyog Ltd. Versus I.T.O., Ward-1 (4) , Kolkata

2018 (2) TMI 669 - ITAT KOLKATA

Penalty u/s 271(1)(c) - AO disallowed and added the depreciation and insurance expenses to the total income of the assessee - defective notice - Held that:- The show cause notice issued in the present case u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 of the Act does not strike out the inappropriate words. In these circumstances, we are of t .....

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rder of CIT(A) whereby the CIT(A) confirmed the order of AO imposing penalty u/s 271(1)(c) of the Income Tax Act, 1961 (Act). 3. The facts and circumstances under which penalty u/s 271(1)(c) of the Act was imposed on the assessee are as follows :- The Assessee is company. It carries on the business of profit on sale of derivatives. The assessee also has income under the head income from property and income in the form of interest. In the course of assessment proceedings the assessee had credited .....

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, mutual funds, & derivatives as Investment and not as Stock-in-Trade. The AO therefore came to the conclusion that the assessee had no business during the year and as such, deductions on account of Keyman insurance and Depreciation are not allowable expenses for the instant assessment year. 4. For the reasons discussed above in the order of assessment the AO disallowed and added the depreciation and insurance expenses to the total income of the assessee. In respect of the addition made in t .....

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he assessee exparte without affording opportunity of being heard. In ground no.2 the assessee has also challenged the validity of imposition of penalty u/s 271(1)(c) of the Act. 6. Before us the ld. Counsel for the assessee submitted that the show cause notice u/s 274 of the Act does not specify the charge against the assessee. A copy of the show cause notice issued u/s 274 of the Act was filed before us. A perusal of the same shows that the AO has not specified as to whether penalty proceedings .....

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013) 359 ITR 565 took a view that imposing of penalty u/s 271(1)(c) of the Act is bad in law and invalid for the reason that the show cause notice u/s 274 of the Act does 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 ld. Counsel further brought to our notice that as against the decision of the Hon ble Karnataka High Court the revenue preferred an appeal in SLP in CC No.11485 of 2016 .....

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efective show cause notice without specifying the charge against the assessee cannot be sustained. Our attention was also drawn to the decision of ITAT in the case of Suvaprasanna Bhattacharya vs ACIT in ITA No.1303/Kol/2010 dated 06.11.2015 wherein identical proposition has been followed by the Tribunal. 8. The ld. DR submitted that it is not mandatory to specify the charge in the show cause notice u/s 274 of the Act. In this regard he placed reliance on certain judicial pronouncements. 9. We h .....

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ncome must be in specific terms and words and that satisfaction of AO must reflect from the order either with expressed words recorded by the AO or by his overt act and action. In our view this decision is on the question of recording satisfaction and not in the context of specific charge in the mandatory show cause notice u/s.274 of the Act. Therefore reference to this decision, in our view is not of any help to the plea of the Revenue before us. 8. The learned DR relied on three decisions of M .....

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note given by the learned DR. This is an unreported decision and a copy of the same was not furnished. However a gist of the ratio laid down in the decision has been given in the written note filed before us. 9. In the case of CIT Vs. Kaushalya (supra), the Hon ble Bombay High Court held that section 274 or any other provision in the Act or the Rules, does not either mandate the giving of notice or its issuance in a particular form. Penalty proceedings are quasi-criminal in nature. Section 274 c .....

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in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice. The ITAT Mumbai Bench in the case of Dhanraj Mills Pvt.Ltd. (supra) followed the decision rendered by the Jurisdictional Hon ble Bombay High court in the case of Kaushalya (supra) and chose not to follow decision of Hon ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra). Re .....

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tunity of being heard. A mistake in the notice would not invalidate penalty proceedings. 10. In the case of Earthmoving Equipment Service Corporation (supra), the ITAT Mumbai did not follow the decision rendered in the case of Manjunatha Cotton & Ginning Factory (supra) for the reason that penalty in that case was deleted for so many reasons and not solely on the basis of defect in show cause notice u/s.274 of the Act. This is not factually correct. One of the parties before the group of Ass .....

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uthority was not sure as to whether she had proceeded on the basis that the assessee had either concealed its income or has furnished inaccurate details. The notice is not in compliance with the requirement of the particular section and therefore it is a vague notice, which is attributable to a patent non application of mind on the part of the Assessing authority. Further, it held that the Assessing Officer had made additions under Section 69 of the Act being undisclosed investment. In the appea .....

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in this case and therefore, on both the grounds the impugned order passed by the Appellate Authority as well as the Assessing Authority was set-aside by its order dated 9th April, 2009. Aggrieved by the said order, the revenue filed appeal before High Court. The Hon ble High Court framed the following question of law in the said appeal viz., 1. Whether the notice issued under Section 271(1)(c) in the printed form without specifically mentioning whether the proceedings are initiated on the ground .....

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mp; Co. Vs. CIT dated 22.8.2017 referred to in the written note given by the learned DR, which is an unreported decision and a copy of the same was not furnished, the same proposition as was laid down by the Hon ble Bombay High Court in the case of Smt.Kaushalya (supra) appears to have been reiterated, as is evident from the extracts furnished in the written note furnished by the learned DR before us. 12. In the case of Trishul Enterprises ITA No.384 & 385/Mum/2014, the Mumbai Bench of ITAT .....

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ice u/s.274 of the Act, there is no mention whether the proceedings are for furnishing inaccurate particulars or concealing particulars of income, that will not vitiate the penalty proceedings. In the present case there is no whispher in the order of assessment on this aspect. We have pointed out this aspect in the earlier part of this order. Hence, this decision will not be of any assistance to the plea of the revenue before us. Even otherwise this decision does not follow the ratio laid down b .....

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hat the line of reasoning of the Hon ble Bombay High Court and the Hon ble Patna High Court is that issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice. The Tribunal Benches at Mumbai and Patna being subordinate to the Hon ble Bombay High Court and Patna H .....

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