Tribunal invalidates penalty due to defective notice, assessee's appeal allowed

The Tribunal upheld the Commissioner (Appeals)' decision to delete the penalty under section 271(1)(c) of the Income Tax Act due to a defective show cause notice, rendering the penalty order invalid. The assessee's cross objection was allowed, and the revenue's appeal was dismissed. The Tribunal did not assess the merits of the penalty, focusing solely on the legal issue. The order was issued on 28/06/2021.

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Issues Involved:
1. Validity of the penalty order under section 271(1)(c) of the Income Tax Act, 1961.
2. Defect in the show cause notice issued under section 274 r.w.s. 271(1)(c).
3. Condonation of delay in filing the cross objection by the assessee.
4. Merits of the penalty imposed under section 271(1)(c).

Detailed Analysis:

1. Validity of the Penalty Order under Section 271(1)(c):
The main issue revolves around the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961, which was deleted by the Commissioner of Income Tax (Appeals) for the assessment year 2010-11. The penalty was initially imposed by the Assessing Officer (AO) for allegedly furnishing inaccurate particulars of income by the assessee, a co-operative bank, in claiming a deduction under section 36(1)(viia).

2. Defect in the Show Cause Notice:
The assessee challenged the validity of the penalty order on the grounds of a defective show cause notice issued under section 274 r.w.s. 271(1)(c) of the Act. The AO had not specifically indicated which limb of section 271(1)(c) was applicable, as the notice did not strike off the inapplicable words. This was supported by the Full Bench decision of the Hon’ble jurisdictional High Court in *Mohammed Farhan A Shaikh vs DCIT* and the Division Bench decision in *Ventura Textiles Ltd vs CIT*. The Tribunal noted that the AO’s failure to specify the exact charge in the notice rendered the penalty order invalid, as it led to ambiguity and vagueness.

3. Condonation of Delay:
The assessee filed an application for condonation of delay of 59 days in filing the cross objection, which was accompanied by an affidavit. The delay was attributed to the officials being preoccupied with statutory and other audits. The Tribunal found the reasons to be bona fide and not deliberate, thus condoning the delay and admitting the cross objection for adjudication on merit.

4. Merits of the Penalty:
The AO observed that the assessee had claimed deductions for branches that did not qualify as rural branches and had created a provision of Rs. 350 lakhs but claimed a deduction of Rs. 36,74,91,638/-. The AO disallowed the excess deduction and imposed a penalty for furnishing inaccurate particulars of income. However, the Tribunal noted that the penalty order was based on a defective notice. The Tribunal also referred to its own decisions in the assessee’s cases for the assessment years 2008-09 and 2009-10, where penalties were deleted due to similar defects in the show cause notices.

Conclusion:
The Tribunal upheld the decision of the Commissioner (Appeals) in deleting the penalty imposed under section 271(1)(c) of the Act due to the defective show cause notice, making the penalty order invalid and without jurisdiction. Consequently, the cross objection filed by the assessee was allowed, and the revenue’s appeal was dismissed. The Tribunal did not delve into the merits of the penalty due to the decision on the legal issue. The order was pronounced on 28/06/2021.

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