2023 (12) TMI 400 - AT - Income Tax

Penalty under section 271(1)(c) invalid due to defective notice lacking specific charges specification

ITAT Mumbai held that penalty under section 271(1)(c) was not leviable due to defective notice. The AO issued notice under section 274 read with 271(1)(c) ... Penalty under section 271(1)(c) of the Income-tax Act - notice under section 274 of the Income-tax Act - concealment of particulars of income - furnishing inaccurate particulars of income - requirement to specify limb of 271(1)(c) - non-application of mind in issuance of penalty noticePenalty under section 271(1)(c) of the Income-tax Act - notice under section 274 of the Income-tax Act - requirement to specify limb of 271(1)(c) - non-application of mind in issuance of penalty notice - Validity of penalty imposed under section 271(1)(c) where the notice under section 274 did not specify whether proceedings were for concealment of particulars of income or for furnishing inaccurate particulars of income. - HELD THAT: - The Tribunal examined whether the penalty could be sustained when the section 274 notice failed to indicate which limb of section 271(1)(c) was invoked. The Court noted that the two limbs of section 271(1)(c) - concealment of particulars of income and furnishing inaccurate particulars of income - have different meanings and consequences; therefore the assessee must be made aware of the specific charge to enable an appropriate response. Reliance was placed on earlier decisions holding that a pro forma notice which retains inapplicable clauses without striking them off gives rise to an inference of non-application of mind by the Assessing Officer. Applying that principle to the facts, the Tribunal found that the notice dated 27/12/2016 was issued in a stereotyped manner without specifying the relevant limb and thus was bad in law. In consequence, the penalty levied under section 271(1)(c) could not be sustained and had to be deleted. The Tribunal further applied this conclusion to all appeals before it which raised the same issue. [Paras 10, 11]Penalty imposed under section 271(1)(c) set aside as the notice under section 274 failed to specify the limb invoked; all appeals allowed.Final Conclusion: The Tribunal deleted the penalty under section 271(1)(c) because the section 274 notice did not specify whether proceedings were for concealment or for furnishing inaccurate particulars, indicating non-application of mind; consequently the appeals for A.Y. 2009-10, 2011-12, 2013-14 and 2014-15 were allowed. Issues:The judgment involves the affirmation of levy of penalty under section 271(1)(c) of the Income-tax Act, 1961 for multiple assessment years by the Appellate Tribunal ITAT Mumbai.Issue 1: Background and Assessment DetailsThe Assessee, a Private Limited Company engaged in the business of builder and developer, filed its return of income for A.Y. 2009-10 declaring Nil income. The assessment order recomputed the income at Rs. 10,13,170. Subsequently, the case was reopened under section 147 of the Act, and the Assessing Officer treated the rental income as 'Income from house property' instead of 'business income.' Various adjustments were made, including adding deemed interest on a security deposit.Issue 2: Penalty ProceedingsUpon confirmation of the assessment by the CIT(A), penalty proceedings were initiated under section 271(1)(c) of the Act. The Assessing Officer levied a penalty of Rs. 3,13,069, which was 100% of the tax sought to be evaded on the income of Rs. 10,13,170. The Assessee challenged the levy of penalty before the Tribunal.Issue 3: Legal Challenge and DecisionThe Assessee contended that the penalty notice suffered from lacunae as the inapplicable portion was not struck off, rendering the penalty order invalid. The Tribunal, after considering the arguments, focused on the legal issue of the validity of the penalty notice. Citing relevant case law, including judgments from the Hon'ble Apex Court and High Courts, the Tribunal found that the notice issued by the Assessing Officer under section 271(1)(c) without specifying the limb of penalty proceedings was bad in law. The Tribunal emphasized the necessity of clearly specifying the relevant limb of penalty under section 271(1)(c) to inform the Assessee adequately. Consequently, the Tribunal held that the penalty was not leviable and deleted the penalty imposed by the Assessing Officer, thereby allowing the Assessee's appeal.ConclusionIn conclusion, the Appellate Tribunal ITAT Mumbai allowed all the appeals filed by the Assessee, emphasizing the importance of specifying the relevant limb of penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961. The Tribunal's decision highlighted the legal requirement for clarity in penalty notices to ensure fair proceedings and informed responses from the Assessee.