2021 (9) TMI 399 - AT - Income Tax

Penalty under Section 271(1)(c) quashed for lack of valid notice, following principle of natural justice.

The CIT(A) justified deleting the penalty under section 271(1)(c) imposed by the AO on disallowed interest expenses. The CIT(A) found the penalty ... Penalty u/s 271(1)(c) - defective notice - non specification of charge - disallowance of interest which has been accepted by the assessee in quantum order - HELD THAT:- We find that the notice in this also is an omnibus show-cause notice as it does not strike off/delete the inappropriate/irrelevant/not applicable portion. Such a generic notice betrays a non-application of mind. Hence, the penalty levied pursuant to such a notice is not legally sustainable in law. Hence as per MR. MOHD. FARHAN A. SHAIKH [2021 (3) TMI 608 - BOMBAY HIGH COURT] we hold that the AO was bereft of valid jurisdiction as the notice issued to assessee is unsustainable in law. Hence, the penalty levied under section 271(1)(c) of the Act is liable to be deleted. Since we have held that the penalty order is liable to be quashed for lack of a valid notice. - Decided in favour of assessee. Issues Involved:1. Justification of the deletion of penalty under section 271(1)(c) by CIT(A).2. Validity of the notice issued under section 274 r.w. section 271(1)(c) for levy of penalty.Detailed Analysis:1. Justification of the deletion of penalty under section 271(1)(c) by CIT(A):The Revenue appealed against the CIT(A)'s decision to delete the penalty under section 271(1)(c) levied on the disallowance of interest, which the assessee had accepted in the quantum order. The main contention was whether the CIT(A) was justified in deleting the penalty.The facts reveal that the assessment for the year 2014-15 was completed, assessing a loss of Rs. 20,07,86,722/- against the returned loss of Rs. 22,59,74,821/-. The major disallowance was due to interest of Rs. 1,72,70,635/- pertaining to earlier years (F.Y. 2012-13 relevant to A.Y. 2013-14) and not the year under consideration. The Assessing Officer (AO) initiated penalty proceedings for furnishing inaccurate particulars of income and levied a penalty of Rs. 56,77,679/-. The AO noted that the assessee claimed bank interest for A.Y. 2014-15 without having any bank loan on the liability side.Upon appeal, the CIT(A) deleted the penalty, observing that the assessee had disclosed all expenses and income from the movie 'Ishque in Paris' in the return for A.Y. 2014-15, including the interest expenses. The CIT(A) noted that the AO did not find these expenses to be bogus or non-genuine. The CIT(A) also highlighted that the AO allowed other expenses from earlier financial years but disallowed the interest claim, which was inconsistent. The CIT(A) concluded that since the work-in-progress for the film project was reflected in the returns, there could be no penalty for concealment or inaccurate particulars.2. Validity of the notice issued under section 274 r.w. section 271(1)(c) for levy of penalty:The assessee's cross-objection challenged the jurisdiction on the grounds that the AO failed to specify the reasons for the levy of penalty in the notice under section 274 r.w. section 271(1)(c), thereby violating the principle of natural justice.The assessee's counsel cited the decision of the Hon'ble Jurisdictional High Court in Mohammed Farhan A. Shaikh Vs. PCIT, which held that a notice must clearly indicate whether the penalty is for concealment of particulars of income or furnishing inaccurate particulars of income. The Departmental Representative could not dispute this proposition.The Tribunal referred to the notices issued to the assessee and found them to be omnibus show-cause notices, failing to strike off the inappropriate/irrelevant portions. The Tribunal cited the Hon'ble Bombay High Court's decision, which emphasized that an omnibus notice without specifying the precise charge betrays non-application of mind and is legally unsustainable. The Tribunal concluded that the penalty levied pursuant to such a notice is not legally sustainable.Conclusion:The Tribunal allowed the assessee's cross-objection, holding that the penalty order was liable to be quashed due to the lack of a valid notice. Consequently, the Revenue's appeal was treated as infructuous. The Tribunal did not engage in the merits of the case, as the penalty order was quashed on jurisdictional grounds.