2020 (6) TMI 305 - HC - Income Tax

Levy of penalty u/s.271(1)(c) - defective notice as to impose penalty was in printed format but the inapplicable portion therein was not struck off - Disallowance of deduction u/s 36(i)(vii) on account of bad debt and subsequently claimed as a deduction u/s 37 as expenditure expended wholly and exclusively for the purpose of business - HELD THAT - The statutory show-cause notice under Section 274 read with Section 271 of the Act proposing to impose penalty was issued on the same day when the assessment order was passed i.e., on 28.02.2006. The said notice was in printed form. Though at the bottom of the notice it was mentioned 'delete inappropriate words and paragraphs', unfortunately, the Assessing Officer omitted to strike off the inapplicable portion in the notice i.e., whether the penalty was sought to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of such income. Such omission certainly reflects a mechanical approach and non-application of mind on the part of the Assessing Officer. For breach of the second limb of Section 271 (1)(c) of the Act i.e., for furnishing inaccurate particulars of income that the penalty proceedings were initiated. The purpose of a notice is to make the noticee aware of the ground(s) of notice. In the present case, it would be too technical and pedantic to take the view that because in the printed notice the inapplicable portion was not struck off, the order of penalty should be set aside even though in the assessment order it was clearly mentioned that penalty proceedings under Section 271(1)(c) of the Act had been initiated separately for furnishing inaccurate particulars of income. Therefore, this contention urged by the appellant / assessee does not appeal to us and on this ground we are not inclined to interfere with the imposition of penalty. Coming to the facts of the present case, we have already noticed that in the assessment order dated 28.02.2006, Assessing Officer had ordered that since the assessee had furnished inaccurate particulars of income, penalty proceedings under Section 271(1)(c) were also initiated separately. Therefore, it was apparent that penalty proceedings were initiated for furnishing inaccurate particulars of income. Whether in the return of income the assessee had furnished inaccurate particulars of income? - Penalty cannot be imposed for alleged breach of one limb of Section 271(1)(c) of the Act while penalty proceedings were initiated for breach of the other limb of Section 271(1)(c). This has certainly vitiated the order of penalty. In appeal, CIT (A) took a curious view that submission of inaccurate particulars of income resulted into concealment, thus upholding the order of penalty. This obfuscated view of the CIT (A) was affirmed by the Tribunal. On the ground that while the charge against the assessee was of furnishing inaccurate particulars of income whereas the penalty was imposed additionally for concealment of income, the order of penalty as upheld by the lower appellate authorities could be justifiably interfered with, still we would like to examine whether there was furnishing of inaccurate particulars of income by the assessee in the first place because that was the core charge against the assessee. Reverting back to the present case it is quite evident that assessee had declared the full facts; the full factual matrix or facts were before the Assessing Officer while passing the asessment order. It is another matter that the claim based on such facts was found to be inadmissible. This is not the same thing as furnishing inaccurate particulars of income as contemplated under Section 271(1) (c) of the Act.

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Application of the Supreme Court's decision in CIT Vs. Reliance Petroproducts Private Limited.
3. Allegation of concealment of particulars or furnishing inaccurate particulars of income.
4. Validity of the penalty order due to ambiguity in the notice issued under Section 274 read with Section 271 of the Act.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The core issue in the appeal was the imposition of a penalty amounting to ?22,08,860 under Section 271(1)(c) of the Act due to the disallowance of ?62,47,460 claimed as a deduction under Section 36(1)(vii) and subsequently under Section 37 of the Act. The Assessing Officer (AO) disallowed the claim, holding that the amount was not a debt and was not incurred wholly and exclusively for business purposes. Consequently, the AO initiated penalty proceedings for furnishing inaccurate particulars of income, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)] and the Income Tax Appellate Tribunal (ITAT).

2. Application of the Supreme Court's Decision in CIT Vs. Reliance Petroproducts Private Limited:
The appellant argued that the mere disallowance of a bona fide claim does not amount to furnishing inaccurate particulars of income, relying on the Supreme Court's decision in CIT Vs. Reliance Petroproducts Pvt. Ltd., which held that making a claim that is not sustainable in law does not amount to furnishing inaccurate particulars of income. The Court observed that the appellant had disclosed all facts and made the claim based on those facts, which were found inadmissible by the AO. This does not equate to furnishing inaccurate particulars.

3. Allegation of Concealment of Particulars or Furnishing Inaccurate Particulars of Income:
The AO's penalty order mentioned both concealment of income and furnishing inaccurate particulars of income. However, the Court noted that penalty proceedings were initiated specifically for furnishing inaccurate particulars of income. The Court emphasized that penalty cannot be imposed for one limb of Section 271(1)(c) when proceedings were initiated for the other limb. The CIT(A) and ITAT's view that submission of inaccurate particulars resulted in concealment was considered obfuscated.

4. Validity of the Penalty Order Due to Ambiguity in the Notice Issued under Section 274 Read with Section 271 of the Act:
The appellant contended that the notice issued under Section 274 read with Section 271 was defective as it did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. The Court acknowledged that the AO's failure to strike off the inapplicable portion in the printed notice reflected non-application of mind. However, the Court reasoned that since the assessment order clearly indicated initiation of penalty proceedings for furnishing inaccurate particulars, the assessee was aware of the grounds for penalty, and thus, the defective notice did not vitiate the penalty proceedings.

Conclusion:
The Court ultimately held that while the defective notice did not invalidate the penalty proceedings, the appellant had not furnished inaccurate particulars of income. The claim was made based on disclosed facts and was found inadmissible, which does not amount to furnishing inaccurate particulars. Therefore, the appeal was allowed, and the penalty order was set aside. The Court answered the questions of law in favor of the appellant/assessee, except for the issue concerning the defective notice, which was answered against the appellant. The appeal was allowed with no order as to costs.