2024 (6) TMI 600 - AT - Income Tax

Penalties under sections 271(1)(c) and 270A deleted due to defective notices and immunity provisions

Ujala Credit Co-operative Society Ltd. Versus National Faceless Appeal Centre, Delhi

ITAT Delhi ruled in favor of the assessee on two penalty matters. For penalty u/s 271(1)(c), the AO failed to strike off irrelevant portions in the notice ... Penalty u/s. 271(1)(c) - Defective notice u/s 274 - not struck off the inappropriate portion as to whether the assessee had concealed the particulars of income or furnished inaccurate particulars of income - whether non-striking off of the irrelevant portion in the penalty notice by not specifically mentioning the offence committed by the assessee, would become fatal to the penalty proceedings ? HELD THAT:- In the instant case, on perusal of the penalty notice placed on record it is evident that the ld. AO had not struck off the irrelevant portion thereon mentioning the specific offence committed by the assessee. The ratio laid down in Mohd. Farhan A Shaikh [2021 (3) TMI 608 - BOMBAY HIGH COURT (LB)]squarely applies to the facts of the instant case before us. Hence we direct the ld. AO to delete the penalty levied u/s 271(1)(c ) of the Act . Decided in favour of assessee. Penalty u/s. 270A - misreporting of income - Disallowance of 10% of miscellaneous expenses,10% of business promotion expenses, 10% of Conveyance and Travelling expenses, 20% of Communication expenses and 10% of Direct operational expenses - HELD THAT:- As we find that in the show cause notice issued u/s 274 r.w.s. 270A of the Act, AO had not bothered to mention the specific sub-clause under which the assessee’s case falls. The provisions of section 270A(9) of the Act clearly define mis reporting of income and hence the ld. AO is duty bound to clearly mention in the show cause notice itself as to which of the sub-clauses in sub-section (9) get attracted in the facts of the present case. Hence it could be safely concluded that the show cause notice issued by the ld. AO is very vague. Entire disallowance of expenses has been made by the ld. AO in the quantum proceedings only on an estimated basis by making adhoc disallowances. Hence the assessee’s case squarely falls under the exception provided in section 270A(6)(b) of the Act, wherein the assessee would be entitled for immunity from levy of penalty u/s 270A of the Act. AO must clearly mention in the show cause notice itself as to which of the sub-clauses in sub-section (9) get attracted to the facts of the instant case. This is conspicuously absent in the show cause notice. See SCHNEIDER ELECTRIC SOUTH EAST ASIA (HQ) PTE LTD. [2022 (3) TMI 1295 - DELHI HIGH COURT] Thus no hesitation to cancel the levy of penalty u/s 270A of the Act in the facts and circumstances of the instant case as the penalty notice is very vague and hence becomes fatal to the proceedings. Decided in favour of assessee. Issues involved: The judgment involves issues related to the levy of penalties under sections 271(1)(c) and 270A of the Income-tax Act, 1961.For ITA No. 1849/Del/2024 - AY 2015-16: The main issue was whether the penalty u/s 271(1)(c) was justified. The appeal was allowed as the penalty notice did not specify the offence committed by the assessee, following the precedent set by the Bombay High Court.For ITA No. 1850/Del/2024 - AY 2017-18: The key issue was the confirmation of penalty u/s 270A. The penalty was canceled as the notice was vague and did not specify the sub-clause under which the penalty was initiated, in line with the decisions of the Jurisdictional High Court.In the first case, the penalty u/s 271(1)(c) was canceled as the penalty notice did not specify the offence committed by the assessee, following the precedent set by the Bombay High Court. The AO was directed to delete the penalty as the notice did not strike off the irrelevant portion regarding the offence committed by the assessee.In the second case, the penalty u/s 270A was canceled as the notice was vague and did not specify the sub-clause under which the penalty was initiated. The assessee had provided complete details during the assessment proceedings, entitling them to relief based on technical grounds. The cancellation of penalty was in line with the decisions of the Jurisdictional High Court.Both appeals were allowed, and the penalties were canceled in light of the technical deficiencies in the penalty notices. The judgments were pronounced on 12/06/2024.