2020 (9) TMI 920 - AT - Income Tax

Penalty Invalidated: ITAT Cancels Penalty Due to Defective Notice u/s 271(1)(c) of I.T. Act for A.Y. 2011-2012.

The ITAT allowed the Assessee's appeal, cancelling the penalty under section 271(1)(c) of the I.T. Act, 1961, for A.Y. 2011-2012. The Tribunal found the ... Penalty u/s 271(1)(c) - Defective show cause notice - A.O. has mentioned both the limbs of Section 271(1)(c) that assessee has concealed the particulars of income or furnished inaccurate particulars of such income - HELD THAT:- Show cause notice Dated 28.02.2014 to be bad in Law as it did not specify under which limb of Section 271(1)(c) of the I.T. Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing inaccurate particulars of income. A.O. in the assessment order initiated the penalty proceedings for furnishing inaccurate particulars of income, but, in the penalty order, levied the penalty for concealment of particulars of income. See M/s. Sahara India Life Insurance Company Ltd. [2019 (8) TMI 409 - DELHI HIGH COURT]. We are of the view that since notice issued before levy of the penalty is bad in Law, therefore, the entire penalty proceedings are vitiated and as such, penalty is liable to be cancelled. We set aside the Orders of the authorities below and cancel the penalty. Appeal of the Assessee allowed. Issues:Levy of penalty under section 271(1)(c) of the I.T. Act, 1961 based on inaccurate particulars of income and concealment of income.Analysis:The appeal was against the Order of the Ld. CIT(A)-1, Gurgaon, challenging the penalty under section 271(1)(c) of the I.T. Act, 1961 for the A.Y. 2011-2012. Initially, the appeal was dismissed for default but was later refixed for hearing on merits. The Assessing Officer (A.O.) made various additions in the assessment order, including expenses treated as capital expenses instead of deductible expenses. The A.O. issued a show cause notice under section 271(1)(c) mentioning both limbs of the section. However, the penalty was levied only for concealment of income, not inaccurate particulars. The Assessee argued that since both limbs are different, the penalty was vague and illegal, requesting its cancellation.The Departmental Representative (D.R.) supported the penalty under section 271(1)(c). The Tribunal noted discrepancies in the A.O.'s approach, where the show cause notice mentioned both limbs, but the penalty was imposed only for concealment of income. Citing relevant judgments, including the Hon’ble Karnataka High Court and the Hon’ble Delhi High Court, it was held that the notice specifying the limb of section 271(1)(c) is crucial. The High Courts' decisions emphasized that if the notice does not specify the limb under which penalty proceedings are initiated, the penalty is liable to be cancelled. Therefore, the Tribunal set aside the Orders of the authorities below and cancelled the penalty, as the notice issued before levy of the penalty was deemed bad in law, rendering the entire penalty proceedings vitiated.In conclusion, the appeal of the Assessee was allowed, and the penalty under section 271(1)(c) of the I.T. Act, 1961 was cancelled due to the defective show cause notice, as per the judgments of the Hon’ble Karnataka High Court and the Hon’ble Delhi High Court.