TMI Blog2018 (3) TMI 788X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 20.02.2015 against the penalty order passed by the ITO, Ward-4(1), Kolkata [ in short the ld AO] under section 271(1)(c ) of the Income Tax Act, 1961 (in short the Act ) dated 21.06.2011 for the Assessment Years 2004-05 2005-06 respectively. Common issue taken up together for the sake of convenience. 2. The only common issue involved in these appeals is as to whether the ld CITA was justified in upholding the levy of penalty u/s 271(1)(c ) of the Act in the facts and circumstances of the case. The facts of Asst Year 2004-05 are taken up for adjudication and the decision rendered thereon would apply with equal force to Asst Year 2005-06 also in view of identical facts except with variance in figures. 3. The Assessee is a Non-Banking Finance Company (NBFC) carrying on the business of financing and trading in shares and securities and was registered as such by the Reserve Bank of India. The assessee filed its return of income u/s 139(1) of the Act on 28.10.2004 declaring total income of ₹ 53,650/- for the Asst Year 2004-05. The ld AO observed that the assessee had advanced ₹ 95,00,000/- to one M/s ISG Traders Ltd and derived interest income for the period 1.4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has not specified as to whether penalty proceedings are being initiated for concealing particulars of income or furnishing inaccurate particulars of income. The irrelevant portion in the show cause notice has not been struck out. The ld AR drew our attention to the decision of the Hon ble Karnataka High Court in the case of CIT vs. SSA s Emerald Meadows in ITA No.380 of 2015 dated 23.11.2015 wherein the Hon ble Karnataka High Court following its own decision in the case of CIT vs Manjunatha Cotton and Ginning factory (2013) 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 AR 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 and the Hon ble Supreme Court by its order dated 05.08.2016 dismissed the SLP preferred by the department. The ld AR also brought to our notice the decision of the Hon ble Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shalya 216 ITR 660 ( Bom ) and ( ii ) M / S . Maharaj Garage Co . Vs . CIT dated 22 . 8 . 2017 . This decision was referred to in the written 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 contains the principle of natural justice of the assessee being heard before levying penalty . Rules of natural justice cannot be imprisoned in any straight - jacket formula . For sustaining a complaint of failure of the Principles of natural justice on the ground of absence of opportunity, it has to be established that prejudice is caused to the concerned person by the procedure followed . The issuance of notice is an administrative device for informing the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 appeal, the said finding was set - aside . But addition was sustained on a new ground, that is under valuation of closing stock . Since the Assessing Authority had initiated penalty proceedings based on the additions made under Section 69 of the Act, which was struck down by the Appellate Authority, the initiated penal proceedings, no longer exists . If the Appellate Authority had initiated penal proceedings on the basis of the addition sustained under a new ground it has a legal sanctum . This was not so 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 . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ginning ( supra ) in as much as the ratio laid down in the said case was only with reference to show cause notice u / s . 274 of the Act . The Hon ble Court did not lay down a proposition that the defect in the show cause notice will stand cured if the intention of the charge u / s . 271 ( 1 ) ( c ) is discernible from a reading of the Assessment order in which the penalty was initiated . 14 . From the aforesaid discussion it can be seen that 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 High Court are bound to follow the aforesaid view . The Tribunal Benchs at Bangalore have to follow the decision of the Hon ble Karnataka High Court . As far as benches of Tribunal in o ..... 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