Shri Narandar Pugalia , Bangalore V. Income Tax Officer Ward-3(2)(3), Bangalore

ITA 2622/BANG/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6077 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 12 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 01-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-03-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 19-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BISWARAJAN SASMAL
• Assessee Lawyers: PRASHANTH G S
• Keywords: Invalid notice; Principle of natural justice; Initiation of penalty proceedings
• Section: 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ITA NO S . 2621 & 2622/BANG/2018 ASSESSMENT YEAR : 2014 - 15 SHRI ROOPCHAND PUGALIA PAN: AALPP 7821R SHRI NARANDAR PUGALIA PAN: AJKPP 0889P NO.41/5, MUTHACHARYA INDL. ESTATE, NAYANDAHALLI, MYSORE ROAD, BENGALURU 560 039. VS. THE INCOME TAX OFFICER, WARD 3(2)(3), BENGALURU. APP ELL ANT RESPONDENT APPELLANT BY : SHRI PRASHANTH G.S., CA RESPOND ENT BY : SHRI BISWARAJAN SASMAL, CIT DATE OF HEARING : 12 . 03.2019 DATE OF PRONOUNCEMENT : 15 .0 3 .201 9 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THESE ARE APPEALS BY TWO DIFFERENT ASSESSEES AGAI NST TWO SEPARATE ORDERS, BOTH DATED 20.07.2018 OF CIT(APPEALS)-3, BE NGALURU, RELATING TO AY 2014-15. IN BOTH THESE APPEALS, THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A), WHEREBY THE CIT(A) CONFIRMED THE OR DER OF THE AO IMPOSING ITA NOS.2621 & 2622/BANG/2018 PAGE 2 OF 11 PENALTY ON THE ASSESSEE U/S.271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT). SINCE THE FACTS AND CIRCUMSTANCES UNDER WHIC H THE PENALTY WAS IMPOSED ON BOTH THE ASSESSEES ARE SIMILAR AND THE D EFENSE OF THE ASSESSEES ARE ALSO SIMILAR, WE DEEM IT CONVENIENT T O PASS A COMMON ORDER. 2. THE FACTS AND CIRCUMSTANCES UNDER WHICH PENALTY WAS IMPOSED ON THE ASSESSEES BY THE AO ARE THAT BOTH ASSESSEES SOL D SHARES AND CLAIMED EXEMPTION OF LONG TERM CAPITAL GAIN (LTCG) ON SALE OF SHARES U/S.10(38) OF THE INCOME TAX ACT, 1961. THE AO, HOWEVER, FOUN D THAT THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES WERE BO GUS AND IT WAS NOTHING BUT AN ATTEMPT TO INTRODUCE ASSESSEES OWN MONEY OU TSIDE THE BOOKS OF ACCOUNTS IN THE FORM OF LTCG. 3. THE AO INITIATED PENALTY PROCEEDINGS IN THE ORDE RS OF ASSESSMENT IN THE CASE OF BOTH THE ASSESSEES U/S.271(1)(C) OF THE ACT. THE AO IMPOSED PENALTY ON THE ASSESSEE HOLDING THAT THE ASSESSEES CONCEALED PARTICULARS OF INCOME. ON APPEAL BY THE ASSESSEES, THE CIT(A) UPHELD THE ORDER OF THE AO. 4. AGGRIEVED BY THE ORDERS OF THE CIT(A), WHICH ARE IDENTICAL IN THE CASE OF BOTH THE ASSESSEES, THE ASSESSEES ARE IN AP PEAL BEFORE THE TRIBUNAL. 5. WE SHALL TAKE UP FOR CONSIDERATION GROUND NO.3 I N BOTH THE APPEALS FOR CONSIDERATION AS PRELIMINARY ISSUE IN BOTH THE APPEALS. GR.NO.3 IN BOTH THE APPEALS READS THUS: 3. A) THE NOTICE ISSUED UNDER SECTION 271(1)(C) OF THE ACT SUFFERS FROM MATERIAL IRREGULARITY IN AS MUCH AS TH E NOTICE WAS ISSUED WITHOUT MENTIONING THE CORRECT LIMB I.E. WHE THER IT IS 'CONCEALMENT' OR 'FURNISHING INACCURATE PARTICULARS OF INCOME' AND ITA NOS.2621 & 2622/BANG/2018 PAGE 3 OF 11 THUS THE ORDER PASSED ON SUCH AN INVALID NOTICE NEE DS TO BE CANCELLED IN THE INTEREST OF EQUITY AND JUSTICE. B) THE ORDER OF PENALTY IS BAD IN LAW AS THE SHOW-C AUSE NOTICE ISSUED DATED 28.12.2016 WHICH IS THE ROOT FOR THE I NITIATION OF PROCEEDINGS IS ITSELF BAD IN LAW AS THE MANDATORY C ONDITIONS PRESCRIBED UNDER THE ACT FOR ISSUE OF NOTICE UNDER SECTION 274 R.W.S. 271 HAVE NOT BEEN COMPLIED WITH AND THUS THE PENALTY LEVIED BASED ON SUCH SHOW CAUSE NOTICE DATED 28.12.2016 NE EDS TO BE DELETED ON THE FACTS OF THE CASE. 6. THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR AT TENTION TO THE SHOW CAUSE NOTICE ISSUED U/S.274 OF THE ACT BEFORE IMPOSING PENALTY AND SUBMITTED THAT THE SAID NOTICE DOES NOT SPECIFY AS TO WHETHER THE ASSESSEES ARE GUILTY OF HAVING FURNISHED INACCURAT E PARTICULARS OF INCOME OR OF HAVING CONCEALED PARTICULARS OF SUCH INCOME . HE POINTED OUT THAT THE SHOW CAUSE NOTICE DOES NOT STRIKE OUT THE IRREL EVANT PORTION VIZ., FURNISHED INACCURATE PARTICULARS OF INCOME OR CO NCEALED PARTICULARS OF SUCH INCOME. HE DREW OUR ATTENTION TO A DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MANJUNATHA COTTON & GINNING FACTORY (2013) 218 TAXMAN 423 (KAR.) WHEREIN IT WAS HELD THAT IF THE SHOW CAUSE NOTICE U/S.274 OF THE ACT DOES NOT SPECIFY AS TO THE EXACT CHARGE VIZ., WHETHER THE CHARGE IS THAT THE ASSESSEE HAS FURNIS HED INACCURATE PARTICULARS OF INCOME OR CONCEALED PARTICULARS O F INCOME BY STRIKING OUT THE IRRELEVANT PORTION OF PRINTED SHOW CAUSE NOTICE , THAN THE IMPOSITION OF PENALTY ON THE BASIS OF SUCH INVALID SHOW CAUSE NOT ICE CANNOT BE SUSTAINED. 7. WE HAVE ALSO PERUSED THE SHOW-CAUSE NOTICE ISSUE D U/S.274 OF THE ACT. THE AO IN THE SAID SHOW CAUSE NOTICE HAS NOT STRUCK OFF THE IRRELEVANT ITA NOS.2621 & 2622/BANG/2018 PAGE 4 OF 11 PORTION AS TO WHETHER THE CHARGE AGAINST THE ASSESS EE IS CONCEALING PARTICULARS OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF INCOME. 8. THE LEARNED DR RELIED ON THE ORDER OF THE CIT(A) . 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE HO NBLE KARNATAKA HIGH COURT IN THE CASE OF CIT & ANR. V. MANJUNATHA COTTON AND GINNING FACTORY, 359 ITR 565 (KARN) , 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 HONBLE HIGH COURT HAS FURTHER LAID DOWN THAT CERTAIN PRINTED FORM WHERE ALL THE GROUND S 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 ON ANOTHER LIMB OF SEC.271(1)(C) OF THE ACT. THE H ONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT & ANR. V. MANJUNATHA COTTON AND GINNING FACTORY (SUPRA) HAS LAID DOWN THE FOLLOWING PRINCIPLES TO BE FOLL OWED IN THE MATTER OF IMPOSING PENALTY U/S.271(1)(C) OF THE ACT:- NOTICE UNDER SECTION 274 59. AS THE PROVISION STANDS, THE PENALTY PROCEEDIN GS CAN BE INITIATED ON VARIOUS GROUND SET OUT THEREIN. IF THE ORDER PASSED BY THE AUTHORITY CATEGORICALLY RECORDS A FINDING REGAR DING THE EXISTENCE OF ANY SAID GROUNDS MENTIONED THEREIN AND THEN PENALTY PROCEEDINGS IS INITIATED, IN THE NOTICE TO BE ISSUE D UNDER SECTION 274, THEY COULD CONVENIENTLY REFER TO THE SAID ORDE R WHICH CONTAINS THE SATISFACTION OF THE AUTHORITY WHICH HAS PASSED THE ORDER. HOWEVER, IF THE EXISTENCE OF THE CONDITIONS COULD N OT BE DISCERNED FROM THE SAID ORDER AND IF IT IS A CASE OF RELYING ON DEEMING PROVISION CONTAINED IN EXPLANATION-1 OR IN EXPLANAT ION-1(B), THEN THOUGH PENALTY PROCEEDINGS ARE IN THE NATURE OF CIV IL LIABILITY, IN FACT, IT IS PENAL IN NATURE. IN EITHER EVENT, THE P ERSON WHO IS ACCUSED OF THE CONDITIONS MENTIONED IN SECTION 271 SHOULD B E MADE KNOWN ITA NOS.2621 & 2622/BANG/2018 PAGE 5 OF 11 ABOUT THE GROUNDS ON WHICH THEY INTEND IMPOSING PEN ALTY ON HIM AS THE SECTION 274 MAKES IT CLEAR THAT ASSESSEE HAS A RIGHT TO CONTEST SUCH PROCEEDINGS AND SHOULD HAVE FULL OPPORTUNITY T O MEET THE CASE OF THE DEPARTMENT AND SHOW THAT THE CONDITIONS STIP ULATED IN SECTION 271(1)(C) DO NOT EXIST AS SUCH HE IS NOT LI ABLE TO PAY PENALTY. THE PRACTICE OF THE DEPARTMENT SENDING A P RINTED FARM WHERE ALL THE GROUND MENTIONED IN SECTION 271 ARE M ENTIONED WOULD NOT SATISFY REQUIREMENT OF LAW WHEN THE CONSE QUENCES OF THE ASSESSEE NOT REBUTTING THE INITIAL PRESUMPTION IS S ERIOUS IN NATURE AND HE HAD TO PAY PENALTY FROM 100% TO 300% OF THE TAX LIABILITY. AS THE SAID PROVISIONS HAVE TO BE HELD TO BE STRICT LY CONSTRUED, NOTICE ISSUED UNDER SECTION 274 SHOULD SATISFY THE GROUNDS WHICH HE HAS TO MEET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATURAL JUSTICE IS OFFENDED IF THE SHOW CAUSE NOTICE IS VAGUE. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED ON THE ASS ESSEE. 60. CLAUSE (C) DEALS WITH TWO SPECIFIC OFFENCES, T HAT IS TO SAY, CONCEALING PARTICULARS OF INCOME OR FURNISHING INAC CURATE PARTICULARS OF INCOME. NO DOUBT, THE FACTS OF SOME CASES MAY ATTRACT BOTH THE OFFENCES AND IN SOME CASES THERE M AY BE OVERLAPPING OF THE TWO OFFENCES BUT IN SUCH CASES T HE INITIATION OF THE PENALTY PROCEEDINGS ALSO MUST BE FOR BOTH THE O FFENCES. BUT DRAWING UP PENALTY PROCEEDINGS FOR ONE OFFENCE AND FINDING THE ASSESSEE GUILTY OF ANOTHER OFFENCE OR FINDING HIM G UILTY FOR EITHER THE ONE OR THE OTHER CANNOT BE SUSTAINED IN LAW. IT IS NEEDLESS TO POINT OUT SATISFACTION OF THE EXISTENCE OF THE GROU NDS MENTIONED IN SECTION 271(1)(C) WHEN IT IS A SINE QUA NON FOR INI TIATION OR PROCEEDINGS, THE PENALTY PROCEEDINGS SHOULD BE CONF INED ONLY TO THOSE GROUNDS AND THE SAID GROUNDS HAVE TO BE SPECI FICALLY STATED SO THAT THE ASSESSEE WOULD HAVE THE OPPORTUNITY TO MEET THOSE GROUNDS. AFTER, HE PLACES HIS VERSION AND TRIES TO SUBSTANTIATE HIS CLAIM, IF AT ALL, PENALTY IS TO BE IMPOSED, IT SHOU LD BE IMPOSED ONLY ON THE GROUNDS ON WHICH HE IS CALLED UPON TO ANSWER . IT IS NOT OPEN TO THE AUTHORITY, AT THE TIME OF IMPOSING PENALTY T O IMPOSE PENALTY ON THE GROUNDS OTHER THAN WHAT ASSESSEE WAS CALLED UPON TO MEET. OTHERWISE THOUGH THE INITIATION OF PENALTY PROCEEDI NGS MAY BE VALID AND LEGAL, THE FINAL ORDER IMPOSING PENALTY W OULD OFFEND PRINCIPLES OF NATURAL JUSTICE AND CANNOT BE SUSTAIN ED. THUS ONCE THE PROCEEDINGS ARE INITIATED ON ONE GROUND, THE PE NALTY SHOULD ALSO BE IMPOSED ON THE SAME GROUND. WHERE THE BASIS OF THE ITA NOS.2621 & 2622/BANG/2018 PAGE 6 OF 11 INITIATION OF PENALTY PROCEEDINGS IS NOT IDENTICAL WITH THE GROUND ON WHICH THE PENALTY WAS IMPOSED, THE IMPOSI TION OF PENALTY IS NOT VALID. THE VALIDITY OF THE ORDER OF PENALTY MUST BE DETERMINED WITH REFERENCE TO THE INFORMATION, FA CTS AND MATERIALS IN THE HANDS OF THE AUTHORITY IMPOSING TH E PENALTY AT THE TIME THE ORDER WAS PASSED AND FURTHER DISCOVERY OF FACTS SUBSEQUENT TO THE IMPOSITION OF PENALTY CANNOT VALI DATE THE ORDER OF PENALTY WHICH, WHEN PASSED, WAS NOT SUSTAI NABLE. 61. THE ASSESSING OFFICER IS EMPOWERED UNDER THE A CT TO INITIATE PENALTY PROCEEDINGS ONCE HE IS SATISFIED I N THE COURSE OF ANY PROCEEDINGS THAT THERE IS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF TOTAL INCOME UNDER CLA USE (C). CONCEALMENT, FURNISHING INACCURATE PARTICULARS OF I NCOME ARE DIFFERENT. THUS THE ASSESSING OFFICER WHILE ISSUING NOTICE HAS TO COME TO THE CONCLUSION THAT WHETHER IS IT A CASE OF CONCEALMENT OF INCOME OR IS IT A CASE OF FURNISHING OF INACCURATE PARTICULARS. THE APEX COURT IN THE CASE OF ASHOK PAI REPORTED IN 292 ITR 11 AT PAGE 19 HAS HELD THAT CONCEALMENT OF INCOME AND FUR NISHING INACCURATE PARTICULARS OF INCOME CARRY DIFFERENT CO NNOTATIONS. THE GUJARAT HIGH COURT IN THE CASE OF MANU ENGINEERING REPORTED IN 122 ITR 306 AND THE DELHI HIGH COURT IN THE CASE OF VIRGO MARKETING REPORTED IN 171 TAXMAN 156, HAS HEL D THAT LEVY OF PENALTY HAS TO BE CLEAR AS TO THE LIMB FOR WHICH IT IS LEVIED AND THE POSITION BEING UNCLEAR PENALTY IS NOT SUSTA INABLE. THEREFORE, WHEN THE ASSESSING OFFICER PROPOSES TO I NVOKE THE FIRST LIMB BEING CONCEALMENT, THEN THE NOTICE HAS TO BE A PPROPRIATELY MARKED. SIMILAR IS THE CASE FOR FURNISHING INACCURA TE PARTICULARS OF INCOME. THE STANDARD PROFORMA WITHOUT STRIKING OF T HE RELEVANT CLAUSES WILL LEAD TO AN INFERENCE AS TO NON-APPLICA TION OF MIND. 10. THE FINAL CONCLUSION OF THE HONBLE COURT WAS A S FOLLOWS:- 63. IN THE LIGHT OF WHAT IS STATED ABOVE, WHAT EME RGES IS AS UNDER:- A) PENALTY UNDER SECTION 271(1)(C) IS A CIVIL LIAB ILITY. B) MENS REA IS NOT AN ESSENTIAL ELEMENT FOR IMPOSI NG PENALTY FOR BREACH OF CIVIL OBLIGATIONS OR LIABILITIES. ITA NOS.2621 & 2622/BANG/2018 PAGE 7 OF 11 C) WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDI ENT FOR ATTRACTING CIVIL LIABILITY. D) EXISTENCE OF CONDITIONS STIPULATED IN SECTION 2 71(1)(C) IS A SINE QUA NON FOR INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271. E) THE EXISTENCE OF SUCH CONDITIONS SHOULD BE DISC ERNIBLE FROM THE ASSESSMENT ORDER OR ORDER OF THE APPELLATE AUTH ORITY OR REVISIONAL AUTHORITY. F) EVEN IF THERE IS NO SPECIFIC FINDING REGARDING THE EXISTENCE OF THE CONDITIONS MENTIONED IN SECTION 271(1)(C), AT L EAST THE FACTS SET OUT IN EXPLANATION 1(A) & (B) IT SHOULD B E DISCERNIBLE FROM THE SAID ORDER WHICH WOULD BY A LE GAL FICTION CONSTITUTE CONCEALMENT BECAUSE OF DEEMING PROVISION . G) EVEN IF THESE CONDITIONS DO NOT EXIST IN THE AS SESSMENT ORDER PASSED, AT LEAST, A DIRECTION TO INITIATE PROCEEDIN GS UNDER SECTION 271(L)(C) IS A SINE QUA NON FOR THE ASSESSM ENT OFFICER TO INITIATE THE PROCEEDINGS BECAUSE OF THE DEEMING PROVISION CONTAINED IN SECTION 1(B). H) THE SAID DEEMING PROVISIONS ARE NOT APPLICABLE TO THE ORDERS PASSED BY THE COMMISSIONER OF APPEALS AND THE COMMISSIONER. I) THE IMPOSITION OF PENALTY IS NOT AUTOMATIC. J) IMPOSITION OF PENALTY EVEN IF THE TAX LIABILITY IS ADMITTED IS NOT AUTOMATIC. K) EVEN IF THE ASSESSEE HAS NOT CHALLENGED THE ORD ER OF ASSESSMENT LEVYING TAX AND INTEREST AND HAS PAID TA X AND INTEREST THAT BY ITSELF WOULD NOT BE SUFFICIENT FOR THE AUTHORITIES EITHER TO INITIATE PENALTY PROCEEDINGS OR IMPOSE PENALTY, UNLESS IT IS DISCERNIBLE FROM THE ASSESSME NT ORDER THAT, IT IS ON ACCOUNT OF SUCH UNEARTHING OR ENQUIR Y CONCLUDED BY AUTHORITIES IT HAS RESULTED IN PAYMENT OF SUCH T AX OR SUCH TAX LIABILITY CAME TO BE ADMITTED AND IF NOT IT WOU LD HAVE ITA NOS.2621 & 2622/BANG/2018 PAGE 8 OF 11 ESCAPED FROM TAX NET AND AS OPINED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. L) ONLY WHEN NO EXPLANATION IS OFFERED OR THE EXPL ANATION OFFERED IS FOUND TO BE FALSE OR WHEN THE ASSESSEE F AILS TO PROVE THAT THE EXPLANATION OFFERED IS NOT BONAFIDE, AN OR DER IMPOSING PENALTY COULD BE PASSED. M) IF THE EXPLANATION OFFERED, EVEN THOUGH NOT SUB STANTIATED BY THE ASSESSEE, BUT IS FOUND TO BE BONAFIDE AND ALL F ACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, NO PENALTY COULD BE IMPOSED. N) THE DIRECTION REFERRED TO IN EXPLANATION IB TO SECTION 271 OF THE ACT SHOULD BE CLEAR AND WITHOUT ANY AMBIGUITY. O) IF THE ASSESSING OFFICER HAS NOT RECORDED ANY S ATISFACTION OR HAS NOT ISSUED ANY DIRECTION TO INITIATE PENALTY PR OCEEDINGS, IN APPEAL, IF THE APPELLATE AUTHORITY RECORDS SATISFAC TION, THEN THE PENALTY PROCEEDINGS HAVE TO BE INITIATED BY THE APP ELLATE AUTHORITY AND NOT THE ASSESSING AUTHORITY. P) NOTICE UNDER SECTION 274 OF THE ACT SHOULD SPECIFIC ALLY STATE THE GROUNDS MENTIONED IN SECTION 271(1)(C), I .E., WHETHER IT IS FOR CONCEALMENT OF INCOME OR FOR FURN ISHING OF INCORRECT PARTICULARS OF INCOME Q) SENDING PRINTED FORM WHERE ALL THE GROUND MENTIONED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY REQUIRE MENT OF LAW. R) THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE HAS T O MEET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATURAL JUSTICE IS OFFENDED. ON THE BASIS OF SUCH PROCEEDINGS, NO P ENALTY COULD BE IMPOSED TO THE ASSESSEE. S) TAKING UP OF PENALTY PROCEEDINGS ON ONE LIMB AND FI NDING THE ASSESSEE GUILTY OF ANOTHER LIMB IS BAD IN LAW. ITA NOS.2621 & 2622/BANG/2018 PAGE 9 OF 11 T) THE PENALTY PROCEEDINGS ARE DISTINCT FROM THE A SSESSMENT PROCEEDINGS. THE PROCEEDINGS FOR IMPOSITION OF PENA LTY THOUGH EMANATE FROM PROCEEDINGS OF ASSESSMENT, IT I S INDEPENDENT AND SEPARATE ASPECT OF THE PROCEEDINGS. U) THE FINDINGS RECORDED IN THE ASSESSMENT PROCEED INGS IN SO FAR AS 'CONCEALMENT OF INCOME' AND 'FURNISHING OF INCOR RECT PARTICULARS' WOULD NOT OPERATE AS RES JUDICATA IN T HE PENALTY PROCEEDINGS. IT IS OPEN TO THE ASSESSEE TO CONTEST THE SAID PROCEEDINGS ON MERITS. HOWEVER, THE VALIDITY OF THE ASSESSMENT OR REASSESSMENT IN PURSUANCE OF WHICH PE NALTY IS LEVIED, CANNOT BE THE SUBJECT MATTER OF PENALTY PRO CEEDINGS. THE ASSESSMENT OR REASSESSMENT CANNOT BE DECLARED A S INVALID IN THE PENALTY PROCEEDINGS. (EMPHASIS SUPPLIED) 11. IT IS CLEAR FROM THE AFORESAID DECISION THAT ON THE FACTS OF THE PRESENT CASE, 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 SOUGH T TO BE IMPOSED. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SSAS EMERALD MEADOWS IN ITA NO.380 OF 2015 DATED 23.11.2015 WHEREIN THE HONBLE KARNATAKA HIGH COURT FOLLOWING ITS OWN DECISION IN THE CASE OF CIT VS MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 IT R 565 TOOK A VIEW THAT IMPOSING OF PENALTY U/S 271(1)(C) OF THE ACT I S BAD IN LAW AND INVALID FOR THE REASON THAT THE SHOW CAUSE NOTICE U/S 274 OF TH E ACT DOES NOT SPECIFY THE CHARGE AGAINST THE ASSESSEE AS TO WHETHER IT IS FOR CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF INCOME. THE LD. COUNSEL FURTHER BROUGHT TO OUR NOTICE THAT AS A GAINST THE DECISION OF THE HONBLE KARNATAKA HIGH COURT THE REVENUE PREFERRED AN APPEAL IN SLP IN CC NO.11485 OF 2016 AND THE HONBLE SUPREME COURT B Y ITS ORDER DATED 05.08.2016 DISMISSED THE SLP PREFERRED BY THE DEPAR TMENT. ITA NOS.2621 & 2622/BANG/2018 PAGE 10 OF 11 12. WE HAVE ALREADY OBSERVED THAT THE SHOW CAUSE NO TICE ISSUED IN THE PRESENT CASE U/S 274 OF THE ACT DOES NOT SPECIFY TH E CHARGE AGAINST THE ASSESSEE AS TO WHETHER IT IS FOR CONCEALING PARTICU LARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME. THE SH OW CAUSE NOTICE U/S 274 OF THE ACT DOES NOT STRIKE OUT THE INAPPROPRIATE WO RDS. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT IMPOSITION O F PENALTY CANNOT BE SUSTAINED. THE PLEA OF THE LD. COUNSEL FOR THE ASSE SSEE, WHICH IS BASED ON THE DECISIONS REFERRED TO IN THE EARLIER PART OF TH IS ORDER, HAS TO BE ACCEPTED. WE THEREFORE HOLD THAT IMPOSITION OF PENA LTY IN THE PRESENT CASES CANNOT BE SUSTAINED AND THE SAME IS DIRECTED TO BE CANCELLED. 13. SINCE THE PENALTY IS DELETED ON THE PRELIMINARY ISSUE OF INVALID SHOW CAUSE NOTICE U/S.274 OF THE ACT, WE ARE NOT DEALING WITH THE MERITS OF THE ORDER IMPOSING PENALTY. 14. IN THE RESULT, THE APPEALS ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF MARCH, 2019. SD/- SD/- ( G. MANJUNATHA ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 15 TH MARCH, 2019. / D ESAI S MURTHY / ITA NOS.2621 & 2622/BANG/2018 PAGE 11 OF 11 COPY TO: 1. APP ELL ANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.