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) without specifying which limb of the penalty provision was being invoked - concealment of income or furnishing inaccurate particulars. Following Karnataka HC precedent in Manjunatha Cotton Ginning Factory, the tribunal found that using standard proforma notice without striking off irrelevant clauses demonstrated non-application of mind by the AO. The penalty notice was deemed invalid as it was issued in stereotyped manner without proper consideration of specific charges, making penalty imposition legally unsustainable.

---

---

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 Details
The 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 Proceedings
Upon 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 Decision
The 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.

Conclusion
In 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.

---