Tribunal overturns penalty for defective notice under Income Tax Act

The Tribunal allowed the appeal filed by the assessee, setting aside the CIT(A)'s findings and deleting the penalty imposed under section 271(1)(c) of the Income Tax Act. The penalty was found unsustainable due to the defective notice that did not specify the charge of furnishing inaccurate particulars of income, as required by principles of natural justice. The Tribunal also noted that the assessee had fully disclosed all facts and was supported by relevant case law, leading to the conclusion that no penalty was leviable.

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Issues Involved:

1. Penalty under section 271(1)(c) of the Income Tax Act.
2. Limitation of time for passing the penalty order.
3. Furnishing of inaccurate particulars of income.

Issue-wise Detailed Analysis:

Issue No. 1 & 3: Penalty under section 271(1)(c) and Furnishing of Inaccurate Particulars of Income

The assessee contested the confirmation of the penalty levied by the AO under section 271(1)(c) of the Income Tax Act. The main argument was that the penalty notice did not specify the exact charge, whether it was for concealment of income or for furnishing inaccurate particulars of income, as the specific limb was not ticked off in the notice. This lack of specificity was argued to render the penalty unsustainable. The assessee relied on the precedent set by the case of CIT-11 Vs. Samson Perinchery and the ITAT Mumbai Bench in Meherjee Cassinath Holdings P. Ltd. Vs. ACIT, Circle-4(2).

The Tribunal noted that the penalty under section 271(1)(c) can be levied for either concealing particulars of income or furnishing inaccurate particulars of income, both having different connotations. The Supreme Court in Dilip N. Shroff (161 taxman 218) had distinguished between these two limbs. The assessment order indicated the penalty was for furnishing inaccurate particulars of income, but the notice did not specify this, making it non-compliant with the principles of natural justice.

The Tribunal referenced the case of Meherjee Cassinath Holdings P. Ltd., where the non-striking off of the irrelevant limb in the penalty notice was seen as a reflection of non-application of mind by the AO. The Tribunal found that the AO's failure to specify the charge in the notice rendered the penalty notice defective, leading to the conclusion that the penalty was not sustainable.

The Tribunal also noted that the assessee had fully disclosed all facts and claimed exemption under sections 11 and 12, which was declined by the AO. This did not constitute furnishing inaccurate particulars or concealing income, thus no penalty was leviable. The Tribunal supported this view with the decision in CIT Vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC) and PCIT Vs. Rasiklal M. Parikh, ITA No. 169 of 2017.

Additionally, the Tribunal observed that the Bombay High Court had admitted the assessee's appeal on substantial questions of law, indicating that the penalty was not justified. The Tribunal cited the jurisdictional High Court decisions in CIT Vs. Aditya Birla Power Co. Ltd. and CIT Vs. Nayan Builders & Developers to support the deletion of the penalty.

Issue No. 2: Limitation of Time for Passing the Penalty Order

Since the penalty was deleted based on the defective notice, the Tribunal did not find it necessary to address the issue of limitation of time for passing the penalty order, deeming it academic in nature.

Reasons for Delay in Pronouncement of Order

The Tribunal acknowledged the delay in pronouncement of the order due to the nationwide lockdown imposed by the Government of India in response to the COVID-19 pandemic. The lockdown caused unprecedented disruption in judicial work, justifying the delay. The Tribunal referred to the decision in DCIT V/s JSW Limited, where similar circumstances were considered, and the period of lockdown was excluded from the computation of the 90-day time limit for pronouncement of orders.

Conclusion

The Tribunal allowed the appeal filed by the assessee, setting aside the CIT(A)'s findings and deleting the penalty imposed under section 271(1)(c) of the Income Tax Act.

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