Penalty quashed due to notice error, appeal allowed, case merits left open for future consideration.

The Tribunal quashed the penalty of Rs. 3,35,707/- imposed under Section 271(1)(c) of the Income Tax Act, 1961, due to the Assessing Officer's failure to clearly specify the charge in the "Show Cause" notice, violating Section 274(1) of the Act. The appeal was allowed, and the Tribunal refrained from assessing the merits of the case, leaving them open for future consideration.

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Issues Involved:
1. Jurisdiction of the Assessing Officer (A.O) under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the "Show Cause" notice issued under Section 274 read with Section 271(1)(c).
3. Imposition of penalty for disallowance of property expenses.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer (A.O) under Section 271(1)(c) of the Income Tax Act, 1961:
The primary issue raised by the assessee was the improper assumption of jurisdiction by the A.O under Section 271(1)(c) of the Income Tax Act, 1961. The assessee argued that the A.O imposed the penalty without clearly specifying the default for which the penalty was being imposed. The A.O issued a "Show Cause" notice under Section 274 read with Section 271(1)(c) but failed to strike off the irrelevant default, i.e., "concealment of income" or "furnishing of inaccurate particulars of income." This failure led to the assessee being unaware of the specific charge against them, thereby depriving them of the opportunity to defend themselves adequately.

2. Validity of the "Show Cause" notice issued under Section 274 read with Section 271(1)(c):
The Tribunal examined the validity of the "Show Cause" notice issued by the A.O. It was observed that the A.O did not strike off the irrelevant default in the notice, indicating a lack of application of mind. The Tribunal emphasized that the two defaults, "concealment of income" and "furnishing of inaccurate particulars of income," are distinct and operate independently. Therefore, it was obligatory for the A.O to clearly specify the default for which the assessee was being called upon to explain. The Tribunal referred to various judicial pronouncements, including those by the Hon'ble Supreme Court and High Courts, which held that non-specification of the charge in the notice reflects non-application of mind and violates the principles of natural justice. Consequently, the "Show Cause" notice was deemed invalid, rendering the penalty order void ab initio.

3. Imposition of penalty for disallowance of property expenses:
On the merits, the assessee argued that the disallowance of property expenses amounting to Rs. 10,86,430/- was due to an inadvertent mistake while compiling the return of income. The assessee contended that the amount was wrongly booked under "administrative expenses" instead of "property expenses." The Tribunal did not delve into the merits of this argument, as the penalty was quashed on jurisdictional grounds. However, it was noted that genuine mistakes should not attract penalty under Section 271(1)(c), as supported by the judgment of the Hon'ble Supreme Court in Price Water House Coopers Pvt. Ltd. Vs. CIT, Kolkata-1.

Conclusion:
The Tribunal concluded that the A.O failed to discharge the statutory obligation of clearly specifying the charge in the "Show Cause" notice, thereby violating Section 274(1) of the Act. As a result, the penalty of Rs. 3,35,707/- imposed under Section 271(1)(c) was quashed. The appeal filed by the assessee was allowed, and the Tribunal refrained from adjudicating the merits of the case, leaving them open for future consideration.

Order Pronouncement:
The order was pronounced in the open court on 16.06.2021.

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