2022 (6) TMI 1246 - AT - Income Tax

Penalty u/s.271(1)(c) - Defective notice u/s 274 - non specification of clear charge - HELD THAT - Where the charge is not properly set out in the notice u/s 274, viz., both the limbs stand therein without striking off the inapplicable one, if any, the penalty order gets vitiated. Turning to the facts of the extant case, we find from the notice u/s 274 of the Act that the AO retained both the limbs, whereas penalty was imposed only with reference to one of them, namely furnishing of inaccurate particulars of income. We overturn the impugned order on this legal issue and direct to delete the penalty imposed by the AO. - Decided against revenue.

Summary

Issues:
- Penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 for assessment years 2008-09, 2009-10, and 2010-11.

Analysis:

A.Y. 2008-09:
1. The assessee, engaged in running educational institutions, was assessed for the year 2008-09. The Assessing Officer (AO) disallowed certain expenses, leading to a revised total income. The Tribunal overturned the assessment order, allowing exemption under section 11 but disallowing specific expenses.
2. The AO initiated penalty proceedings under section 271(1)(c) based on the revised total income. The ld. CIT(A) directed the AO to recompute the penalty only on the additions confirmed by the Tribunal. The Tribunal noted that additions deleted by the Tribunal cannot be a basis for penalty imposition.
3. The Tribunal highlighted that the AO's penalty notice did not specify whether the additions constituted concealment or inaccurate particulars of income. Citing relevant case law, the Tribunal held that the penalty order was flawed due to the notice's ambiguity, leading to the penalty's deletion.

A.Y. 2009-10:
1. Similar to the previous year, the AO disallowed expenses, resulting in revised total income for the year 2009-10. The Tribunal restored exemption under section 11 and disallowed specific expenses. The AO imposed a penalty based on the revised total income.
2. The ld. CIT(A) directed the AO to limit the penalty to the additions sustained by the Tribunal. The Tribunal held that the penalty initiation was flawed as the notice mentioned both limbs of section 271(1)(c) without specifying the basis for penalty imposition. Consequently, the penalty was directed to be deleted.

A.Y. 2010-11:
1. The appeal for the year 2010-11 involved the deletion of penalties related to additions that were deleted by the Tribunal in quantum proceedings. The Tribunal upheld the deletion of penalties based on the consistency with previous years' decisions.
2. Following the pattern of the preceding years, the Tribunal dismissed the appeal, affirming the deletion of penalties related to additions nullified by the Tribunal in the quantum proceedings.

In conclusion, the Tribunal consistently ruled in favor of the assessee, emphasizing the importance of clear penalty notices specifying the basis for penalty imposition. The penalties were deleted for all three assessment years based on the Tribunal's decisions nullifying specific additions.