2019 (6) TMI 41 - AT - Income Tax

Invalid Penalty Notice Leads to Deletion of Rs. 1,54,50,000 Penalty

M/s Gragerious Projects Pvt. Ltd. Versus Assistant Commissioner of Income Tax, Circle-10 (2), New Delhi.

The Tribunal found the penalty under Section 271(1)(c) invalid due to vague penalty notices and the bona fide nature of the assessee's claim of a business ... Penalty u/s 271(1)(c) - defective notice - non specification of charge - allowable deduction either as a business loss or a capital loss? - HELD THAT:- AO has not pointed out any furnishing of inaccurate particulars by the assessee. He simply arrived at the conclusion that the advance written off cannot be allowed as expense in the profit & loss account. Thus, in the whole body of the order, no satisfaction has been recorded for initiating penalty proceedings. Only at the end of the computation of income, the Assessing Officer has recorded “Keeping in view the facts of the case, I am satisfied that it warrants the initiation of penalty proceedings u/s 271(1)(c) of the I.T. Act”. Thus, no specific charge is specified either in the assessment order or in the penalty notices. On these facts, the decision of Hon’ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory [2013 (7) TMI 620 - KARNATAKA HIGH COURT] would be squarely applicable. The assessee filed the return declaring loss of ₹ 354.34 crores. Even the Assessing Officer allowed the carry forward of long term capital loss of ₹ 350.31 crores. The Revenue authorities have not doubted the correctness of the assessee’s claim that it suffered the loss of ₹ 5 crores. Meaning thereby, the genuineness of loss is not in dispute. The only dispute was whether it is an allowable deduction either as a business loss or a capital loss. The assessee’s claim is not accepted by the Revenue. However, on these facts, we do not find any justification to arrive at the conclusion that the loss claimed by the assessee was mala fide. See RELIANCE PETROPRODUCTS PVT. LTD. [2010 (3) TMI 80 - SUPREME COURT] - Decided in favour of assessee. Issues Involved:1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act.2. Validity of penalty notices issued by the Assessing Officer.3. Bona fide nature of the assessee's claim.Issue-wise Detailed Analysis:1. Confirmation of Penalty under Section 271(1)(c):The assessee contested the confirmation of a penalty amounting to Rs. 1,54,50,000/- imposed by the Assessing Officer. The penalty was levied on the grounds of alleged inaccurate particulars of income concerning a disallowed business expenditure of Rs. 5 crores. The assessee argued that the penalty was invalid as the Assessing Officer did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. The Tribunal noted that the Assessing Officer failed to record any satisfaction for initiating penalty proceedings in the assessment order. The Tribunal cited the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton and Ginning Factory and Others, which mandates specific charges for penalty initiation.2. Validity of Penalty Notices:The Tribunal scrutinized the penalty notices dated 23rd May 2017 and 3rd November 2017. It found that both notices were vague and did not specify the exact charge against the assessee. The first notice mentioned 'have concealed the particulars of your income or furnished inaccurate particulars of such income,' without pinpointing a specific charge. The subsequent notice was merely a reminder of the first. The Tribunal emphasized that such vague notices do not allow the assessee to prepare a proper defense. This lack of specificity rendered the penalty notices invalid, following the precedent set by the Hon'ble Karnataka High Court in the Manjunatha Cotton case.3. Bona Fide Nature of Assessee's Claim:The Tribunal examined whether the assessee's claim of a Rs. 5 crore loss was bona fide. The assessee argued that the loss was incurred during business activities and should be allowed either as a business loss or a capital loss. The Tribunal observed that the Assessing Officer disallowed the claim without specifying which particulars were inaccurate. The Tribunal referred to the Hon'ble Supreme Court's decision in CIT Vs. Reliance Petroproducts Pvt. Ltd., which held that merely making an unsustainable claim does not amount to furnishing inaccurate particulars. The Tribunal found no evidence that the assessee's claim was mala fide or made with the intention to evade tax. The Tribunal concluded that the claim was bona fide, and hence, the penalty was not justified.Conclusion:The Tribunal held that the penalty under Section 271(1)(c) was not valid due to the lack of specific charges in the penalty notices and the bona fide nature of the assessee's claim. The penalty was deleted, and the appeal of the assessee was allowed. The decision was pronounced in the open court on 29th May 2019.