2017 (1) TMI 1048 - AT - Income Tax

Penalty under section 271(1)(c) - defective notice - inappropriate words and paragraphs in the standard proforma of the notice issued under section 274 r.w.s. 271 of the Act not excluded - Held that - Apex Court in the case of Dilip N. Shroff (2007 (5) TMI 198 - SUPREME Court) in respect of holding that inappropriate words and paragraphs in the standard proforma of the notice issued under section 274 r.w.s. 271 of the Act as used by the AO were required to be deleted and the same not having been done, the impugned notice issued on 11.03.2015 for assessment year 2012-13; then the fact the impugned notice/order suffers from non-application of mind, still holds good and is intact. The assessee should succeed on this legal issue. We, therefore, while taking into consideration the facts and circumstances of the case on hand and applying the ratio and deriving support from the aforesaid decisions of the Hon ble Apex Court (discussed supra), hold that the notice dated 11.03.2015 issued for initiation of penalty proceedings under section 274 r.w.s. 271 of the Act for levy of penalty under section 271(1)(c) of the Act for A.Y. 2012-13 is defective and issued without application of mind and is therefore invalid and consequently the orders levying penalty under section 271(1)(c) of the Act for A.Y. 2012-13 is also invalid and liable to be cancelled. In this view of the matter, the additional ground raised by the assessee for A.Y. 2012-13 is allowed. - Decided in favour of assessee

Issues Involved:
1. Validity of the penalty notice under section 274 read with section 271 of the Income Tax Act, 1961.
2. Application of mind by the Assessing Officer (AO) when issuing the penalty notice.
3. The legal basis for the penalty under section 271(1)(c) of the Act.
4. The relevance of sections 292B and 292BB in curing defects in the penalty notice.

Detailed Analysis:

1. Validity of the Penalty Notice under Section 274 r.w.s. 271:
The assessee challenged the penalty notice dated 11.03.2015 on the grounds that it did not specify the default committed, i.e., whether it was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." The Tribunal found that the notice was vague and did not clearly indicate the charge against the assessee, leading to a conclusion of non-application of mind by the AO. This vagueness and ambiguity rendered the notice invalid and bad in law.

2. Application of Mind by the AO:
The Tribunal emphasized that the AO must apply their mind when issuing a penalty notice. The AO should clearly specify the limb under which the penalty is initiated, either for concealment of income or for furnishing inaccurate particulars. The notice issued to the assessee was found to be a standard proforma where inappropriate words/portions were not struck off, indicating that the AO was uncertain of the exact charge. This lack of specificity and clarity demonstrated non-application of mind, rendering the penalty proceedings invalid.

3. Legal Basis for the Penalty under Section 271(1)(c):
The Tribunal referred to the Supreme Court's decision in Dilip N. Shroff vs. JCIT, which highlighted the necessity of specifying the charge for penalty under section 271(1)(c). The Tribunal reiterated that the terms "concealed the particulars of income" and "furnished inaccurate particulars of income" refer to different acts and must be clearly distinguished in the notice. The AO's failure to specify the exact charge in the notice dated 11.03.2015 invalidated the penalty proceedings.

4. Relevance of Sections 292B and 292BB:
The Department argued that any defects in the notice were cured by sections 292B and 292BB since the assessee had participated in the penalty proceedings. However, the Tribunal held that these sections do not cure the fundamental defect of non-application of mind. The Tribunal cited the ITAT Bangalore Bench decision in K. Prakash Shetty vs. ACIT, which supported the view that non-specificity in the notice cannot be cured by sections 292B and 292BB.

Conclusion:
The Tribunal concluded that the penalty notice dated 11.03.2015 was invalid due to non-application of mind and lack of specificity regarding the charge against the assessee. Consequently, the penalty order under section 271(1)(c) for A.Y. 2012-13 was also invalid and liable to be cancelled. The assessee's appeal was allowed, and the other grounds raised by the assessee were deemed unnecessary for adjudication at this stage.

Final Order:
The assessee's appeal for A.Y. 2012-13 was allowed, and the penalty order under section 271(1)(c) was cancelled. The order was pronounced in the open court on 13th January 2017.

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