Tax penalty under Section 271(1)(c) canceled due to defective notice & debatable disallowance under Section 43B.

The Tribunal held that the penalty under Section 271(1)(c) of the IT Act was not sustainable due to the defective notice and the debatable nature of the disallowance under Section 43B. The order of the CIT(A) was set aside, and the Assessing Officer was directed to cancel the penalty. The appeal filed by the assessee was allowed.

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Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the IT Act.
2. Non-striking off of inappropriate words in the penalty notice.
3. Merits of the disallowance under Section 43B of the IT Act.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the IT Act:
The primary issue in this case is the levy of a penalty amounting to Rs. 48,36,979/- under Section 271(1)(c) of the IT Act by the Assessing Officer (AO), which was upheld by the CIT(A). The penalty was imposed on the grounds that the assessee had concealed particulars of income and furnished inaccurate particulars by not including an amount of Rs. 1,45,61,540/- disallowable under Section 43B due to non-payment of service tax. The AO noted that this amount was mentioned in the tax audit report but was not furnished with the return of income, indicating a deliberate attempt to suppress the amount.

2. Non-striking off of Inappropriate Words in the Penalty Notice:
The assessee argued that the penalty notice issued under Section 274 read with Section 271 of the IT Act was invalid because the AO did not strike off the inappropriate words, thus failing to specify whether the penalty was for "concealing the particulars of income" or "furnishing inaccurate particulars of income." The Tribunal referred to decisions such as CIT v. Manjunatha Cotton & Ginning Factory, CIT v. SSA’s Emerald Meadows, and CIT v. Samson Perinchery, which support the view that non-striking off inappropriate words renders the notice bad in law. The Tribunal found that the penalty notice in this case did not specify the charge against the assessee, making the penalty order unsustainable.

3. Merits of the Disallowance under Section 43B of the IT Act:
On the merits, the assessee contended that the disallowance under Section 43B was not justified as the service tax was not claimed as a deduction in the Profit & Loss Account. The Tribunal referred to the Delhi High Court's decision in CIT v. Noble & Hewitt (I) (P) Ltd., which held that no disallowance under Section 43B can be made if the assessee did not claim a deduction for the unpaid service tax. The Tribunal also noted that in the subsequent assessment year (2012-13), the CIT(A) had deleted a similar addition, and the Revenue did not appeal against this decision. Therefore, the issue became debatable, and penalty under Section 271(1)(c) is not leviable on debatable issues.

Conclusion:
The Tribunal concluded that the penalty under Section 271(1)(c) was not sustainable due to the defective notice and the debatable nature of the disallowance under Section 43B. The order of the CIT(A) was set aside, and the AO was directed to cancel the penalty. The appeal filed by the assessee was allowed.

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