2019 (12) TMI 316 - AT - Income Tax

Invalid penalty notice leads to successful appeal for assessee under Income Tax Act

The Tribunal allowed the appeal, ruling in favor of the assessee, as the penalty imposed under section 271(1)(c) of the Income Tax Act was deemed invalid ... Imposition of penalty u/s 271(1)(c) of the Income Tax Act, 1961 - assessee has challenged the order of the AO before the ld.CIT(A) on the ground that AO imposed penalty u/sec.271(1)(c) of the Act which is not in accordance with the provisions of the Act - HELD THAT:- In this case the AO has issued penalty notice on 05/02/2014 u/s 274 r.w.s. 271(1)(c) in which the AO has not marked one of the two limbs i.e. concealment of particulars of income or furnishing inaccurate particulars of income and has issued notice in mechanical manner in standard format without application of mind. The notice issued by the AO is not valid as the AO failed to mention the charge on which the penalty was proposed to be levied thereby depriving the assessee to respond to the charge on which the penalty was proposed to be levied. The case is squarely covered by the decision of the Hon'ble Bombay High Court in the case of THE COMMISSIONER OF INCOME TAX-11 VERSUS SHRI SAMSON PERINCHERY [2017 (1) TMI 1292 - BOMBAY HIGH COURT] which provides that failure on the part of the AO to state the charge on which the penalty was proposed to be levied would render the penalty order as invalid and ab initio and thus penalty cannot be sustained. Appeal of assessee is allowed. Issues involved:Challenge against penalty imposed under section 271(1)(c) of the Income Tax Act, 1961.Analysis:1. Issue of Penalty Imposition: The appeal was against the imposition of penalty under section 271(1)(c) of the Income Tax Act. The assessee contended that the penalty was not in accordance with the provisions of the Act. The AO had imposed the penalty, and the assessee challenged it before the ld.CIT(A) on the grounds that the penalty was not justified and was confirmed on merits.2. Validity of Penalty Notice: The key legal issue was whether the AO had imposed the penalty in accordance with the provisions of section 271(1)(c). The AO had issued a penalty notice without specifying one of the two limbs - concealment of particulars of income or furnishing inaccurate particulars of income. The notice was issued mechanically and in a standard format without proper application of mind, depriving the assessee of the opportunity to respond to the specific charge on which the penalty was proposed to be levied.3. Legal Arguments and Precedents: The appellant's representative argued that the penalty notice was invalid due to the failure to specify the charge, citing legal precedents such as CIT vs. SSA’s Emerald Meadows, CIT vs. Samson Perinchery, and M/s. Nishigandha Trading Co. Ltd. vs. DCIT. These cases highlighted the importance of correctly stating the charge for a penalty to be valid and sustainable.4. Decision and Rationale: After considering the arguments and reviewing the material on record, the Tribunal found that the penalty notice issued by the AO was not valid as it did not specify the charge on which the penalty was proposed to be levied. The Tribunal relied on the decisions of the Hon’ble Karnataka High Court and the Hon’ble Bombay High Court, which emphasized the necessity of stating the charge clearly for a penalty order to be valid. Consequently, the Tribunal set aside the order of the ld.CIT(A) and directed the AO to delete the penalty, ruling in favor of the assessee.5. Final Verdict: The Tribunal allowed the appeal of the assessee, concluding that the penalty imposed under section 271(1)(c) was not valid due to the deficiency in the penalty notice. As a result, the appeal was allowed, and the penalty was directed to be deleted.This detailed analysis of the legal judgment highlights the issues involved, the arguments presented, the legal precedents cited, the decision rendered by the Tribunal, and the final outcome of the appeal.