2023 (1) TMI 1402 - AT - Income Tax

Second penalty notice under section 274 valid for imposing penalty under section 271(1)(c) for disallowed section 10B deduction

ITAT Mumbai held that the second penalty notice u/s 274 was valid for imposing penalty u/s 271(1)(c) regarding disallowance of deduction u/s 10B, as the ... Penalty u/s 271(1)(c) - defective notice u/s 274 - non specification of charge - validity of Second Penalty Notice -admissibility of deduction u/s 10B - HELD THAT:- As disallowance of deduction u/s 10B the AO had initiated penalty proceedings for furnishing inaccurate particulars of income. In the Penalty Order, penalty has been levied for furnishing inaccurate particulars of income. Thus, penalty u/s 271(1)(c) has been levied on the same ground on which penalty proceedings were initiated. Thus, we hold that the Second Penalty Notice was a valid notice issued under Section 274 of the Act and that the CIT (A) erred in deleting the penalty on the ground that First Penalty Notice issued under Section 274 read with Section 271(1)(c) of the Act was void-ab-initio without taking into the consideration complete facts of the case and the Second Penalty Notice. Accordingly, we set aside the order passed by the CIT (A) in this regard and remand the issue of levy of penalty for furnishing inaccurate particulars of income in relation to deduction claimed under Section 10B of the Act back to the file of CIT (A) for adjudication on merits. Second Penalty Notice did not make any reference to furnishing of inaccurate particulars of income in relation to the transfer pricing addition - Assessing Officer had only pursued levy of penalty in relation to disallowance of deduction u/s 10B after the order passed by the CIT (A) in quantum appeal and did not put the Assessee to notice in relation to penalty for furnishing inaccurate particulars of income pertaining to the transfer pricing addition - Further, it was also contended by the Ld. Departmental Representative that the penalty has been levied on the basis of Second Penalty Notice. Thus, no penalty can be levied in relation to the transfer pricing addition. Revenue appeal partly allowed. Issues Involved:1. Deletion of penalty under Section 271(1)(c) for not specifying the charge in the notice.2. Validity of the penalty proceedings initiated under Section 271(1)(c) for furnishing inaccurate particulars of income.3. Validity of the penalty proceedings initiated under Section 271(1)(c) for concealment of income.Detailed Analysis:1. Deletion of Penalty under Section 271(1)(c) for Not Specifying the Charge in the Notice:The Revenue challenged the CIT(A)'s order that deleted the penalty on the ground that the charge of penalty was not specified in the notice under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961. The CIT(A) relied on the Full Bench judgment of the Hon'ble Bombay High Court in the case of Mohd. Farhan A Shaikh Vs. DCIT, which held that the penalty notice must specify whether it is for concealment of particulars of income or for furnishing inaccurate particulars of income. The notice issued was an omnibus notice without striking off the inapplicable limb, rendering it void-ab-initio.2. Validity of the Penalty Proceedings Initiated for Furnishing Inaccurate Particulars of Income:The assessment order dated 31.03.2016 initiated penalty proceedings for furnishing inaccurate particulars of income in respect of certain additions/disallowances. The CIT(A) failed to consider the Second Penalty Notice issued on 16.01.2021, which specifically charged the assessee with furnishing inaccurate particulars of income for the disallowance of deduction under Section 10B. The Tribunal noted that the Second Penalty Notice fulfilled the requirement of informing the assessee about the grounds of penalty proceedings, thus meeting the test laid down by the Hon'ble Bombay High Court. The Tribunal held that the Second Penalty Notice was valid and remanded the issue of levy of penalty for furnishing inaccurate particulars of income in relation to the deduction claimed under Section 10B back to the file of CIT(A) for adjudication on merits.3. Validity of the Penalty Proceedings Initiated for Concealment of Income:The assessment order also initiated penalty proceedings for concealment of income in respect of other additions/disallowances. The Tribunal observed that the CIT(A) did not consider the Second Penalty Notice while deleting the penalty. The Tribunal highlighted that the penalty proceedings should be confined to the grounds on which they were initiated. The Tribunal rejected the contention that only the First Penalty Notice was relevant and emphasized that the issuance of notice under Section 274 is a statutory requirement before passing the penalty order. The Tribunal noted that the Second Penalty Notice did not reference the transfer pricing addition of INR 7,46,225/-, and therefore, no penalty could be levied in relation to this addition.Conclusion:The Tribunal held that the Second Penalty Notice was valid for the disallowance of deduction under Section 10B and remanded the issue back to CIT(A) for adjudication on merits. However, the penalty in relation to the transfer pricing addition of INR 7,46,225/- was deleted as the Second Penalty Notice did not reference it. The appeal filed by the Revenue was partly allowed.Order Pronounced on 17.01.2023.