Brief of the Case
In the case Shri B L Dasraj Urs Vs. ITO the Hon’ble Bangalore ITAT held that show cause notice u/s 274 is defective if it does not spell out the grounds on which penalty is sought to be imposed.
Facts of the Case
The assessee is an individual engaged in the business of manufacturing of office stationery products. A Survey was conducted u/s.133A of the Act in the business premises of the Assessee on 25.1.2008. In the course of survey certain bank accounts in the name of the Assessee were found. The transaction entries in this bank accounts were not recorded in the books of accounts maintained by the Assessee for AY 2004-05 to 2007-08. The Assessee explained that the bank accounts evidence unaccounted sales. The Assessee claimed that only the gross profit on these unaccounted sales can be added as income of the Assessee and not the entire sales. The claim of the Assessee was not accepted by the Revenue authorities and the entire sale value was treated as income of the Assessee and brought to tax in AY 2004-05 to 2007-08. On appeal by the Assessee, the Hon’ble ITAT held that only gross profit can be subjected to tax and not the entire sale value.
In respect of the additions made in the assessment proceedings as above, for all the four assessment years, the AO imposed penalty u/s. 271(1)(c) of the Act on the assessee was confirmed by the CIT(Appeals).
Contention of the Assessee
The Assessee was not satisfied with the imposition of Penalty u/s 271(1)(c) of the Act. The ld. counsel for the assessee submitted that the show cause notice issued u/s. 274 of the Act does not specify as to whether penalty proceeding is being initiated for concealing particulars of income or furnishing inaccurate particulars of income or for any other reason as irrelevant columns of the printed form of notice u/s. 274 have not been struck off by the AO.
The ld. Counsel for the assessee cited the decision of the Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), wherein the Hon’ble High Court 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, theaforesaid decision will squarely apply and all the orders imposing penalty have to be held as bad in law and liable to be quashed.
Contention of the Revenue
The ld. DR relied on the order of the CIT(Appeals) wherein the CIT(A) has expressed his opinion that the assessee was fully aware of the charge against him and he cannot take shelter on technical grounds.
Held by ITAT
The Hon’ble Bangalore ITAT relied on the decision of the The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), and reproduced all the principles which are to be followed in the matter of imposing penalty u/s 271(1)(c) which were laid down in the above mentioned case.
The Hon’ble ITAT stated that 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, it held that the orders imposing penalty in all the assessment years have to be held as invalid and consequently cancelled penalty imposed.
Case laws relied upon by the ITAT