2020 (10) TMI 78 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice - inappropriate words have not been struck off from the penalty notice - HELD THAT - Absence of non-striking of the inappropriate words in the notice issued u/s 274 r.w.s. 271(1)(c) - A perusal of the penalty notice issued under section 274 read with 271 which has already been reproduced in the preceding paragraphs shows that the inappropriate words have not been struck off and it is not clear as to under which limb of provisions of section 271(1)(c) the AO has initiated penalty proceedings, i.e., for concealment or furnishing of inaccurate particulars of income. Similarly, the subsequent notice issued by the AO on 2nd June 2017 does not show anything and the AO simply asked the assessee to show cause as to why penalty u/s 271(1)(c) should not be imposed in your case. We find merit in the argument of the ld. counsel that the AO is not sure as to under which limb he has initiated penalty proceedings u/s 271(1)(c) of the Act, i.e., for concealment of income or for furnishing inaccurate particulars of income. We find identical issue had come up before in the case of PCIT vs M/s Sahara India Life Insurance Company Limited. 2019 (8) TMI 409 - DELHI HIGH COURT - We hold that the penalty proceedings initiated by the AO is not in accordance with law and, therefore, the same has to be quashed. - Decided in favour of assessee.

Issues Involved:
1. Validity of initiation of penalty proceedings due to non-striking of inappropriate words in the penalty notice.
2. Appropriateness of the penalty imposed under section 271(1)(c) of the Income Tax Act for concealment or furnishing inaccurate particulars of income.
3. Merits of the penalty imposition based on the assessee's claim of agricultural income.

Detailed Analysis:

1. Validity of Initiation of Penalty Proceedings:

The primary issue raised by the assessee was the validity of the penalty proceedings initiated under section 271(1)(c) of the Income Tax Act due to the non-striking of inappropriate words in the penalty notice. The assessee argued that the notice issued by the AO did not specify the specific charge, i.e., whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. The Tribunal observed that the penalty notice dated 26th December 2016 did not strike off the inappropriate words, making it unclear under which limb of section 271(1)(c) the penalty proceedings were initiated. The Tribunal referenced the decision of the Hon'ble Delhi High Court in the case of PCIT vs. M/s Sahara India Life Insurance Company Limited, which stated that a notice would be invalid if it did not specify the limb under which the penalty was being initiated. The Tribunal also cited the case of Sanjay Mitra vs. DCIT, where a similar issue led to the quashing of penalty proceedings. Consequently, the Tribunal found merit in the argument that the penalty notice was invalid due to the lack of specificity.

2. Appropriateness of the Penalty Imposed:

The Tribunal examined whether the penalty imposed under section 271(1)(c) was appropriate. The AO had levied a penalty of ?8,15,760/- for both concealment and furnishing inaccurate particulars of income. The Tribunal noted that the AO's satisfaction for initiating penalty proceedings was not clear, as the AO mentioned both charges in the penalty order. The Tribunal reiterated that the AO must be clear about the specific charge when initiating penalty proceedings. The Tribunal found that the AO was not sure under which limb the penalty was initiated, which aligned with the precedent set by the Hon'ble Delhi High Court and the Tribunal in prior cases. Therefore, the Tribunal concluded that the penalty imposed was not sustainable.

3. Merits of the Penalty Imposition:

Regarding the merits of the penalty imposition, the assessee claimed that the ?24 lakhs treated as income under section 69A was actually agricultural income received as rent from M/s Nature Forms & Real Estate Pvt. Ltd. The assessee argued that rent derived from land used for agricultural purposes is considered agricultural income under section 2(1A)(a) of the Income Tax Act. The assessee had previously declared agricultural income, which was accepted by the Department. Although the assessee accepted the addition made by the AO to avoid litigation, the assessee contended that the claim was bona fide and did not warrant penalty proceedings. The Tribunal did not adjudicate on the merits of the case, as the legal ground regarding the validity of the penalty notice was sufficient to quash the penalty proceedings.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, quashing the penalty proceedings initiated by the AO. The Tribunal held that the penalty notice was invalid due to the non-striking of inappropriate words, which made it unclear under which limb of section 271(1)(c) the penalty was being initiated. Consequently, the grounds on the merits of the penalty imposition became academic and were not adjudicated. The order was pronounced in the open court on 29.09.2020.

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