2023 (5) TMI 465 - AT - Income Tax

Tribunal rules in favor of assessee, directs deletion of penalty under Income-tax Act

The Tribunal allowed the appeal, ruling in favor of the assessee and directing the deletion of the penalty imposed under section 271(1)(c) of the ... Penalty u/s.271(1)(c) - Defective notice u/s 274 - non specification of clear charge - HELD THAT:- AO proposed to impose penalty on both the limbs namely; “….you have concealed the particulars of your income or furnished inaccurate particulars of such income”. Irrelevant limb was not struck out. The question as to whether penalty should be imposed in such circumstances is no more res integra by virtue of the full Bench judgment of the Hon’ble Bombay High Court in Mohd. Farhan A. Shaikh & Anr. [2021 (3) TMI 608 - BOMBAY HIGH COURT] holding that if the charge in the notice u/s 274 is vague i.e. irrelevant charge has not been struck off, the penalty order u/s 271(1)(c) gets vitiated. Thus where the charge is not properly set out in the notice u/s 274 viz., both the limbs stand therein without striking off of the inapplicable limb, but the penalty has been, in fact, levied for one of the two, such a penalty order gets vitiated. We find from the notice u/s 274 of the Act that the AO did not strike out one of the two limbs, whereas the penalty is only on one addition - Decided in favour of assessee. Issues:The judgment involves the imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961 based on unexplained agricultural income admitted by the assessee and the validity of the penalty notice issued by the Assessing Officer.Imposition of Penalty:The assessee filed a return declaring total income of Rs.77,862, but during inquiries, admitted unexplained agricultural income of Rs.3.00 lakh. The assessment was completed considering the unexplained income, leading to the initiation of penalty proceedings under section 271(1)(c) of the Act. The penalty order was confirmed in the first appeal, prompting the assessee to appeal before the Tribunal.Validity of Penalty Notice:The Tribunal noted that the penalty notice issued by the Assessing Officer did not strike out one of the two limbs regarding the concealment of income or furnishing inaccurate particulars. Citing the Full Bench judgment of the Bombay High Court, it was held that if the charge in the notice is vague and both limbs are not properly distinguished, the penalty order under section 271(1)(c) is vitiated. The Tribunal found that the penalty was imposed only on one addition despite both limbs being present in the notice, leading to the decision to overturn the penalty and direct its deletion.Conclusion:In line with the legal precedent set by the Bombay High Court, the Tribunal allowed the appeal, ruling in favor of the assessee and directing the deletion of the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961. The judgment emphasized the importance of clarity in penalty notices to ensure the validity of penalty orders.