2018 (10) TMI 132 - AT - Income Tax

Penalty U/s 271(1)(c) - non specification of charge - defective notice - inappropriate words in the notice issued u/s 274 r.w.s. 271 have not been struck off - Held that - A perusal of the notice issued u/s 274 r.w.s. 271 dated 31.03.2004 shows that the inappropriate words in the said notice have not been struck off and it is a printed notice. Even the last line of the said notice only speaks of section 271 and does not even mention of section 271(1)(c) of the I.T. Act. We find an identical issue had come up before this Bench of the Tribunal in the case of Sahiwal Investment & Trading co. vs. ITO 2018 (7) TMI 1472 - ITAT DELHI holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. - Decided in favour of assessee

Summary

Issues:
1. Validity of penalty u/s 271(1)(c) based on notice issued u/s 274 r.w.s. 271.
2. Whether inappropriate words in the notice invalidate the penalty proceedings.

Issue 1: Validity of penalty u/s 271(1)(c) based on notice issued u/s 274 r.w.s. 271:
The appeal challenged the penalty imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961. The assessee argued that the notice issued under section 274 r.w.s. 271 did not specify the charge against the assessee, whether for concealing income particulars or furnishing inaccurate income particulars. The assessee contended that the penalty order based on such a notice should be set aside. Citing various decisions, the assessee emphasized the importance of a specific charge in the notice for penalty proceedings. The Assessing Officer and the ld. CIT(A) supported the penalty, stating that the notice's language or non-striking off inappropriate words did not invalidate the penalty proceedings.

Issue 2: Whether inappropriate words in the notice invalidate the penalty proceedings:
The Tribunal analyzed the notice issued u/s 274 r.w.s. 271 and found that the inappropriate words were not struck off, and the notice did not specify the limb of provisions under which the penalty u/s 271(1)(c) was initiated. Referring to a similar case, the Tribunal concluded that the notice's lack of specificity rendered the penalty notice null and void. Despite the ld. DR's reliance on non-jurisdictional High Court decisions to support the penalty validity, the Tribunal followed the principle that in case of two views on an issue, the one favorable to the assessee should be adopted. Consequently, the Tribunal set aside the ld. CIT(A)'s order and directed the Assessing Officer to cancel the penalty imposed.

In conclusion, the Tribunal allowed the appeal, emphasizing the necessity of a specific charge in the notice for penalty proceedings under section 271(1)(c) and held that the penalty based on a notice lacking specificity is not sustainable. The decision highlighted the importance of following the view favorable to the assessee in case of conflicting interpretations, ultimately canceling the penalty levied by the Assessing Officer.