Penalty Notice u/s 274 should specify Grounds: ITAT [Read Order]

PAN - Penalty - TAN - Taxscan

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) in the case of Ravina Khurana hearing 15 joint appeals held that there is no justification imposing the penalty without mentioning the grounds specified in the notice issued under section 274 of the Income Tax Act.

The issues before the Tribunal were that whether the income declared by the appellant company relating to receipts from another semi-governmental company incorporated in Russia and credited to a London Bank Account shall be added as unexplained income under Section 69A of the IT Act; Whether interest under Section 234B, 234C, 234D, and 244A of the IT Act and penalty under Section 274 under the IT Act shall be levied on the assessee.

The Court towards the contention relating addition as ‘unexplained income’, held in favor of the Commissioner of Income Tax (Appeals) (CIT). The receipts from another company have not been considered as income from “profit and gains of business or profession” but “unexplained money” The Court further explained that since the assessee has not produced any evidence to justify its claim of expenditure, the grounds raised by the assessee are thus rejected. The Court elucidated that the same has been concluded since the documents (i.e. photocopy of agreements) produced by the assessee company do not throw sufficient light on the nature and source of the huge deposits.

To the contention that no interest is leviable on the facts of the instant case, the assessee contended that he always had a bona fide belief that income arising from services and created in bank accounts outside was not liable to be included as income for taxation in India and had further included the additional income to be taxed. The Tribunal relying upon various provisions and judgments held that it is settled position of law that levy of interest U/s 234B, 234C and 234D is mandatory and hence, rejected the claim of the assessee.

Towards the issue that whether the penalty shall be levied over the assessee company, the Tribunal went on to elaborate that it was evident from the notices that the AO has not specifically mentioned under which limb of the Act, the penalty proceedings shall be initiated by him. It was held that a notice under Section 274 should specifically state the grounds mentioned i.e. whether it is for concealment of income or for the furnishing of inaccurate particulars of income. It was further held that the penalty proceedings so initiated by the AO are bad in law.

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