2020 (11) TMI 414 - AT - Income Tax

Tribunal quashes tax penalty due to procedural errors and lack of evidence

Spykar Lifestyles Pvt. Ltd. Versus Assistant Commissioner of Income Tax -13 (2) (1), Mumbai

Spykar Lifestyles Pvt. Ltd. Versus Assistant Commissioner of Income Tax -13 (2) (1), Mumbai - TMI Issues Involved:1. Validity of the penalty order under Sec. 271(1)(c) of the Income Tax Act.2. Jurisdictional error in the penalty notice.3. Merits of the penalty imposed for disallowance of Fringe Benefit Tax (FBT).Detailed Analysis:1. Validity of the Penalty Order:The primary issue is whether the Commissioner of Income Tax (Appeals) erred in upholding the penalty order passed by the Assistant Commissioner of Income Tax under Sec. 271(1)(c) of the Income Tax Act, 1961. The assessee argued that no penalty should have been levied for the year under consideration and that the penalty notice was invalid due to a lack of a clear charge. Furthermore, the charge on which the penalty was levied differed from the charge on which it was initiated.2. Jurisdictional Error in the Penalty Notice:The assessee contended that the penalty notice was invalid because the Assessing Officer (A.O) failed to strike off the irrelevant default in the body of the Show Cause Notice (SCN). The A.O initiated the penalty for 'furnishing of inaccurate particulars of income' but imposed it for 'concealment of income.' The tribunal observed that both defaults are separate and distinct, and the A.O could not have initiated the penalty for one default and imposed it for another. This discrepancy rendered the penalty order unsustainable in law.The tribunal referenced the Hon’ble Supreme Court's judgments in Dilip & Shroff Vs. Jt. CIT and T. Ashok Pai Vs. CIT, which clarified that 'concealment of income' and 'furnishing of inaccurate particulars of income' have different connotations. The tribunal concluded that the A.O's failure to specify the exact charge in the SCN reflected non-application of mind and violated the principles of natural justice, thereby invalidating the penalty order.3. Merits of the Penalty Imposed for Disallowance of Fringe Benefit Tax (FBT):The assessee had inadvertently claimed a deduction of Rs. 38,20,500/- on account of FBT, which was disallowed by the A.O under Sec. 40(a)(ic) of the Act. The A.O initiated penalty proceedings under Sec. 271(1)(c) for 'furnishing of inaccurate particulars of income' and later imposed the penalty for 'concealment of income.' The tribunal noted that the A.O's failure to strike off the irrelevant default in the SCN and the discrepancy between the initiated and imposed charges invalidated the penalty proceedings.The tribunal also observed that the assessee had accepted the disallowance during the assessment proceedings, indicating a bonafide mistake rather than an intentional act of concealment or furnishing inaccurate particulars. Consequently, the tribunal held that no penalty under Sec. 271(1)(c) could be validly imposed on the assessee for the inadvertent error.Conclusion:The tribunal allowed the appeal filed by the assessee, quashing the penalty of Rs. 12 lac imposed by the A.O under Sec. 271(1)(c) of the Income Tax Act. The tribunal emphasized that the A.O's failure to specify the exact charge in the SCN and the discrepancy between the initiated and imposed charges rendered the penalty order invalid. The tribunal refrained from adjudicating the merits of the case, as the penalty had already been quashed on jurisdictional grounds.