PCIT Vs Dr. Murari Mohan Koley (Calcutta High Court)
The case of PCIT vs. Dr. Murari Mohan Koley before the Calcutta High Court addressed a fundamental procedural issue in the imposition of penalties under Section 271(1)(c) of the Income Tax Act, 1961. The core issue was whether a penalty could be legally sustained if the initial show-cause notice issued to the assessee was defective because it did not specify the exact charge. The penalty in this case was levied for five assessment years: 2004-05, 2005-06, 2006-07, 2007-08, and 2009-10.
Factual Background
The tax authorities initiated penalty proceedings against the assessee, Dr. Murari Mohan Koley, after a best-judgment assessment found that he had not disclosed a bank account in his tax returns. Deposits in this undisclosed bank account were added to his total income. Subsequently, the Assessing Officer imposed a penalty equivalent to 100% of the tax sought to be evaded. The assessee’s challenge to the penalty was initially rejected by the Commissioner of Income Tax (Appeals). However, the Income Tax Appellate Tribunal (ITAT) allowed his appeal.
The ITAT’s decision was based on a crucial procedural flaw: the show-cause notice issued under Section 274 of the Income Tax Act did not specify the exact charge. The notice contained a generic phrase that included both charges—”concealment of particulars of income” and “furnishing inaccurate particulars of income”—without striking out the inapplicable one.
