2019 (8) TMI 1442 - AT - Income Tax

ITAT Mumbai overturns penalty under Income Tax Act, citing procedural flaw

The ITAT Mumbai allowed the appeal, directing the deletion of the penalty imposed under section 271(1)(c) of the Income Tax Act. The penalty proceedings ... Penalty levied u/s 271(1)(c) - issuing show cause notice without specifically mentioning the charge on which the penalty was proposed to be levied - defective notice - HELD THAT:- The said notice was issued in a standard format without striking off the redundant or irrelevant part of the notice and the notice states that penalty has been initiated for concealing the particulars of income or for furnishing of inaccurate particulars of income. Thus the notice has been issued by the AO in a mechanical manner without application of mind. By issuing such notice, the assessee is deprived of his legitimate right to respond to the specific charge on which the penalty was proposed to be levied by the AO and therefore the penalty proceedings itself are invalid and can not be sustained for violation of principles of natural justice. In case of CIT vs. Shri Samson Perinchery [2017 (1) TMI 1292 - BOMBAY HIGH COURT] and CIT vs. Mrs. Piedade Perinchery [2017 (1) TMI 1458 - BOMBAY HIGH COURT] has held that failure to state the limb in the notice issued u/s 271(1)(c) of the Act would render the proceedings invalid. - Decided in favour of assessee. Issues:Challenge to penalty under section 271(1)(c) on technical ground.Detailed Analysis:1. Technical Ground Challenge:The appellant challenged the penalty under section 271(1)(c) imposed by the AO, which was upheld by the Ld. CIT(A). The main contention was that the penalty notice was issued without specifically mentioning the charge on which the penalty was proposed to be levied. The AO initiated penalty proceedings for inaccurate particulars of income related to cessation of liability but not for another disallowance made. The penalty notice was issued in a standard format without striking off the redundant limb, depriving the assessee of the right to respond to the specific charge. The Ld. CIT(A) dismissed the appeal, citing a previous decision of the Hon’ble Bombay High Court. However, subsequent decisions by the same court and the Karnataka High Court held that failure to state the limb in the notice renders the proceedings invalid. The ITAT Mumbai set aside the Ld. CIT(A)’s order and directed the AO to delete the penalty, following the principles of natural justice and the decisions of the higher courts.2. Adjudication and Conclusion:The ITAT Mumbai observed that the penalty proceedings were initiated without proper application of mind by the AO, as the notice was issued in a mechanical manner. By not specifying the charge, the assessee was denied the opportunity to respond adequately. Citing relevant judgments, the ITAT Mumbai held that the penalty proceedings were invalid due to the procedural flaw in the notice. As a result, the appeal of the assessee was partly allowed on the technical issue, and there was no need to address the merits of the case. The ITAT Mumbai pronounced the order in favor of the assessee on 9th August 2019, directing the deletion of the penalty imposed under section 271(1)(c) of the Income Tax Act.