K. Prakash Shetty vs. ACIT ITAT Bangalore ‘B’ Bench Before N. V. Vasudevan (JM) and Jason P. Boaz (AM) ITA No. 265 to 267/Bang/2014 A.Y.: 2006-07, 2008-09 and 2009-10. Decided on: 05-06-2014. Counsel for assessee/revenue: H. N. Khincha/ Farahat H. Qureshi

Facts:
The assessee was an individual who belonged to M/s. Gold Finch Hotel Group. There was a search u/s. 132 of the Act on 20-11-2009 in the case of the assessee. On 30-12-2011, assessment orders were passed u/s. 143(3) r.w.s. 153A for AY 2006-07, 2008-09 and 2009-10. In each of these years, the income returned in response to notice issued u/s. 153A exceeded the returned income declared in return of income filed u/s. 139. The difference between the income returned u/s. 139 and income returned u/s. 153A of the Act was due to disclosure made by the assessee consequent to search u/s. 132 of the Act.

For AY 2006-07, the Assessing Officer (AO) initiated penalty proceedings u/s. 271(1)(c) of the Act and for AY 2008-09, he initiated penalty proceedings u/s. 271(1) (c)/271AAA of the Act and for AY 2009-10, he initiated penalty proceedings u/s 271AAA of the Act. In respect of all the three years, the AO imposed penalty u/s. 271(1) (c) of the Act.

Aggrieved, the assessee preferred an appeal to CIT(A) who confirmed the order passed by the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal, where it challenged the validity of orders imposing penalty on the ground that the show cause notice issued u/s. 274 of the Act was defective for AY 2006-07 and that for AY s 2008-09 and 2009-10 notice u/s. 274 of the Act had been issued for imposing penalty u/s. 271AAA of the Act, but the order imposing penalty was passed u/s. 271(1)(c) of the Act.

Held:
The show cause notice issued 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. The show cause notice is also bad for the reason that in A.Y.s 2008-09 and 2009-10 the show cause notice refers to imposition of penalty u/s. 271AAA whereas the order imposing penalty has been passed u/s. 271(1)(c) of the Act. It held that the aforesaid defect cannot be said to be curable u/s. 292BB of the Act, as the defect cannot be said to be a notice which is in substance and effect in conformity with or according to the intent and purpose of the Act. Following the decision of the Karnataka High Court in the case of CIT & Anr vs. Manjunatha Cotton and Ginning Factory (359 ITR 565) (Kar), the Tribunal held that the orders imposing penalty in all assessment years to be invalid and consequently it cancelled the penalty imposed.

The appeal filed by the assessee was allowed.