2021 (5) TMI 687 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice u/s 274 - AO did not strike off either of the two limbs viz., concealed the particulars of income or furnished inaccurate particulars of such income, albeit it was a case of furnishing of inaccurate particulars of income - HELD THAT - A copy of the notice issued u/s. 274 of the Act has been placed in the appeal folder, from which it is discernible that the AO did not strike off either of the two limbs viz., concealed the particulars of income or furnished inaccurate particulars of such income, albeit it was a case of furnishing of inaccurate particulars of income. The penalty order also came to be passed by holding in para 6.5 that 'the amount added or disallowed in computing the total income of the assessee as a result thereof shall, for the purposes of clause (c) of this sub- section (1) of section 271, be deemed to represent the income in respect of which particulars have been concealed or inaccurate particulars have been furnished.' It is clear that where the charge is not properly set out in the notice u/s. 274 viz., both the limbs stand therein without striking off of the inapplicable limb, but the penalty has been, in fact, levied for one of the two, such a penalty order gets vitiated. We find from the notice u/s. 274 of the Act that the AO did not strike out one of the two limbs. Not only that, the penalty was also imposed in the same way by referring to both the limbs in the penalty order. As against that, the penalty was leviable only on one limb, namely, furnishing of inaccurate particulars of income. In such a situation, the penalty order gets vitiated. Respectfully following MR. MOHD. FARHAN A. SHAIKH 2021 (3) TMI 608 - BOMBAY HIGH COURT we overturn the impugned order and direct to delete the penalty. - Decided in favour of assessee.

Summary

Issues:
Appeal against penalty under section 271(1)(c) of the Income-tax Act, 1961 for assessment year 2011-12.

Detailed Analysis:

1. Background and Assessment Proceedings:
The appeal pertains to a penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2011-12. The appellant, engaged in the business of processing and sale of milk, transferred assets and liabilities to another entity without disclosing capital gains. The Assessing Officer (AO) added an amount under section 50B of the Act, leading to a penalty of ?31,42,000 imposed by the AO. The Commissioner of Income Tax (Appeals) upheld the penalty, prompting the appellant to appeal to the Tribunal.

2. Legal Issue and Precedents:
The Tribunal observed that the penalty notice did not specify whether the penalty was for concealing income or furnishing inaccurate particulars. Citing recent judgments by the Bombay High Court and the Supreme Court, the Tribunal noted that failure to strike off inapplicable portions of the notice renders the penalty order invalid. The Tribunal referred to the Full Bench judgment of the Bombay High Court in a similar case, emphasizing the importance of correctly setting out the charge in the penalty notice.

3. Decision and Ruling:
The Tribunal found that the AO did not strike out one of the two limbs in the penalty notice, and the penalty order referred to both limbs despite the penalty being leviable only for furnishing inaccurate particulars of income. Following the legal precedents and the Full Bench judgment, the Tribunal ruled in favor of the appellant, holding that the penalty order was vitiated due to the incorrect setting out of charges in the notice. Consequently, the Tribunal overturned the penalty and directed its deletion.

4. Conclusion:
The Tribunal allowed the appeal, emphasizing the necessity of accurately specifying the charge in the penalty notice under section 271(1)(c) of the Income-tax Act, 1961. The judgment highlighted the significance of following legal precedents and ensuring procedural compliance in penalty proceedings to maintain the validity and enforceability of penalty orders. The decision serves as a reminder of the importance of procedural correctness in tax penalty assessments and the implications of errors in penalty notices on the validity of penalty orders.