2020 (6) TMI 374 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - Defective notice - Whether mere mistake in language used or mere non-striking off of inaccurate portion cannot by itself invalidate the notice under section 274? - addition being the service tax disallowable u/s 43B - HELD THAT - AO on the basis of the details furnished by the assessee during the course of assessment proceedings, made an addition u/s 43B being the unpaid liability towards service tax. The above liability was shown under the head Current liabilities in the balance sheet. The assessee did not prefer any appeal and thereafter penalty was levied u/s 271(1)(c) of the IT Act which has been upheld by the CIT(A). A perusal of the copy of the notice issued u/s 274 shows that the inappropriate words in the said notice has not been struck off. Even the last line of the said notice only speaks of section 271 and does not even mention section 271(1)(c) . We find, the Delhi Bench of the Tribunal in the case of Sanjay Mittra 2018 (10) TMI 132 - ITAT DELHI had considered an identical issue and following the decision of the Tribunal in the case of Sahiwal Investment Trading Co. vs. ITO 2018 (7) TMI 1472 - ITAT DELHI has cancelled the penalty levied by the AO. Even on merits also we find, the Hon ble Delhi High Court in the case of Noble Hewitt (I) (P) Ltd. 2007 (9) TMI 238 - DELHI HIGH COURT has held that where the assessee did not debit the amount to the P L Account as an expenditure nor did the assessee claim any deduction in respect of the amount where the assessee was following mercantile system of accounting, the question of disallowing the deduction not claimed would not arise. We further find the CIT(A) in assessee s own case for A.Y. 2012-13, deleted the addition of unpaid service tax which was added back by the assessee in its revised computation of income. Issue as to addition u/s 43B on account of non-payment of service tax liability when the same has not been debited in the Profit Loss Account nor claimed as an expenditure has become a debatable issue. It has been held in various decisions that penalty u/s 271(1)(c) is not leviable on account of additions which are debatable issues. We, therefore, are of the opinion that penalty u/s 271(1)(c) of the IT Act, 1961 is not leviable on merit also. We are of the considered opinion that no penalty u/s 271(1)(c) of the Act is leviable. - Decided in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the IT Act.
2. Non-striking off of inappropriate words in the penalty notice.
3. Merits of the disallowance under Section 43B of the IT Act.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the IT Act:
The primary issue in this case is the levy of a penalty amounting to ?48,36,979/- under Section 271(1)(c) of the IT Act by the Assessing Officer (AO), which was upheld by the CIT(A). The penalty was imposed on the grounds that the assessee had concealed particulars of income and furnished inaccurate particulars by not including an amount of ?1,45,61,540/- disallowable under Section 43B due to non-payment of service tax. The AO noted that this amount was mentioned in the tax audit report but was not furnished with the return of income, indicating a deliberate attempt to suppress the amount.

2. Non-striking off of Inappropriate Words in the Penalty Notice:
The assessee argued that the penalty notice issued under Section 274 read with Section 271 of the IT Act was invalid because the AO did not strike off the inappropriate words, thus failing to specify whether the penalty was for "concealing the particulars of income" or "furnishing inaccurate particulars of income." The Tribunal referred to decisions such as CIT v. Manjunatha Cotton & Ginning Factory, CIT v. SSA’s Emerald Meadows, and CIT v. Samson Perinchery, which support the view that non-striking off inappropriate words renders the notice bad in law. The Tribunal found that the penalty notice in this case did not specify the charge against the assessee, making the penalty order unsustainable.

3. Merits of the Disallowance under Section 43B of the IT Act:
On the merits, the assessee contended that the disallowance under Section 43B was not justified as the service tax was not claimed as a deduction in the Profit & Loss Account. The Tribunal referred to the Delhi High Court's decision in CIT v. Noble & Hewitt (I) (P) Ltd., which held that no disallowance under Section 43B can be made if the assessee did not claim a deduction for the unpaid service tax. The Tribunal also noted that in the subsequent assessment year (2012-13), the CIT(A) had deleted a similar addition, and the Revenue did not appeal against this decision. Therefore, the issue became debatable, and penalty under Section 271(1)(c) is not leviable on debatable issues.

Conclusion:
The Tribunal concluded that the penalty under Section 271(1)(c) was not sustainable due to the defective notice and the debatable nature of the disallowance under Section 43B. The order of the CIT(A) was set aside, and the AO was directed to cancel the penalty. The appeal filed by the assessee was allowed.