2021 (12) TMI 763 - AT - Income Tax

Invalid Penalties under Income Tax Act Sections 271G and 271AA Deleted by Tribunal

The Tribunal deleted penalties imposed under Sections 271G and 271AA of the Income Tax Act. It found that the lower authorities failed to specify ... Penalty u/s 271G - assessee failed to keep and maintain any information as per the provisions of section 92D - As per AO assessee firm has entered into specified domestic transactions and hence the assessee was liable to keep and maintain such information and document as per the provisions of subsection (3) of section 92D - Appellant submits that there is general and substantial compliance of the provisions of Rule 10D inasmuch as all the requisite documents, details and submissions have been filed before the learned AO in the course of the assessment proceedings and no fault has been found with respect to the same and AO ought to have first issued a notice specifying the document or information to be furnished by the Appellant and only if the Appellant did not comply with such notice could the question of levying penalty under section 271G arise - HELD THAT:- The submission of the assessee is cogent. The order of authorities below is conspicuous inasmuch as there is no mention as to what document required/ordered for and which were not maintained. The order passed by the authorities below is mechanical without proper application of mind. Hence, on the touchstone of above discussion and precedents we set aside the order of authorities below and direct that the penalty be deleted - Decided in favour of assessee. Penalty u/s 271AA - defective notice - Allegation of non strike of irrelevant words - assessee failed to keep and maintain any information as per the provisions of section 92D - 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 relying on MR. MOHD. FARHAN A. SHAIKH case [2021 (3) TMI 608 - BOMBAY HIGH COURT] we hold that the Assessing Officer was bereft of valid jurisdiction as the notice issued to assessee is unsustainable in law. - Decided in favour of assessee. Issues Involved:1. Penalty under Section 271G of the Income Tax Act, 1961.2. Penalty under Section 271AA of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Penalty under Section 271G of the Income Tax Act, 1961:The primary issue under consideration is whether the penalty levied under Section 271G of the Income Tax Act, 1961, was justified. The facts reveal that the assessee firm entered into a purchase agreement of immovable properties with its associated firm for a consideration of Rs. 7,18,00,000/-. The Assessing Officer (AO) observed that one of the partners had more than 20% share in both firms, making the transactions specified domestic transactions as per Section 92BA(i) and 40A(2)(b) of the Income Tax Act, 1961. Consequently, the assessee was required to maintain information and documents as per Section 92D(3). The AO found that the assessee failed to maintain such information and imposed a penalty of Rs. 14,37,000/- under Section 271G.The assessee contended that the transactions were at arm's length price, evidenced by the fair market value and registered agreements with paid stamp duty. The assessee argued that all required documents were provided during the assessment proceedings, thus complying with Section 92D(3). However, the AO was not satisfied and maintained that the assessee failed to furnish details as per Section 92D(3) r.w.r. 10D(3).Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the penalty, stating that the appellant failed to keep and maintain necessary information and documents as per Section 92D(3). The CIT(A) noted that the appellant did not submit the 3CEB report during the assessment proceedings and failed to disclose the specified transaction in its return of income.The Tribunal, after hearing both parties, found the assessee's submission cogent. It noted that the authorities below did not specify which documents were required and not maintained. The Tribunal held that the orders were mechanical and lacked proper application of mind. Consequently, the Tribunal set aside the orders of the authorities below and directed that the penalty be deleted.2. Penalty under Section 271AA of the Income Tax Act, 1961:The second issue pertains to the penalty levied under Section 271AA of the Income Tax Act, 1961. Similar to the previous issue, the assessee firm entered into a purchase agreement with its associated firm for a consideration of Rs. 7,18,00,000/-. The AO observed that the transactions exceeded Rs. 5 crore, making them specified domestic transactions under Sections 92BA(i) and 40A(2)(b). The AO found that the assessee failed to keep and maintain information as per Sections 92D(1) and (2), leading to a penalty of Rs. 14,37,000/- under Section 271AA.The assessee argued that the penalty was levied on a different ground than the one provided in the Act. The AO penalized the assessee for not disclosing the specified domestic transaction in the return of income, which is not a ground for penalty under Section 271AA. The assessee also contended that the AO did not specify which documents were not maintained as required under Sections 92D(1) and (2).The CIT(A) confirmed the AO's action, stating that the appellant failed to keep and maintain necessary information and documents as per Section 92D(1) and (2). The CIT(A) noted that the appellant did not submit the 3CEB report during the assessment proceedings and failed to disclose the specified transaction in its return of income.The Tribunal, upon careful consideration, found that the penalty was levied on a different ground than the one provided in the Act. It noted that the AO issued an omnibus show-cause notice without specifying the charge, which is not permissible. Citing the Hon'ble Bombay High Court's decision in Farhan A. Shaikh vs. PCIT, the Tribunal held that such a notice is invalid as it does not specify the charge for which the proceedings are initiated. The Tribunal also noted that the penalty was not justified on merits as the AO did not specify which documents were not maintained. Consequently, the Tribunal deleted the penalty.Conclusion:Both penalties under Sections 271G and 271AA were deleted by the Tribunal. The Tribunal found that the authorities below did not specify the required documents and issued mechanical orders without proper application of mind. Additionally, the penalty under Section 271AA was levied on a different ground than the one provided in the Act, and the notice issued was invalid.