2021 (6) TMI 932 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - Defective notice u/s 274 - assessee has challenged the impugned order contending that the show-cause notice issued by the AO is not a valid notice to initiate the penalty proceedings as the assessee has not been made aware as to whether he has concealed the particulars of income or has furnished inaccurate particulars of such income - HELD THAT - A bare perusal of the notice issued to the assessee u/s 274 read with section 271(1)(c) goes to prove that assessee has not been called upon to explain if it has concealed the particulars of income or furnished inaccurate particulars of such income. We are of the considered view that when the assessee has not been specifically made aware of the charges leveled against it as to whether there is a concealment of income or furnishing of inaccurate particulars of income on its part, the penalty u/s 271(1)(c) of the Act is not sustainable. Recently, the Hon ble Delhi High Court M/S. SAHARA INDIA LIFE INSURANCE COMPANY, LTD. 2019 (8) TMI 409 - DELHI HIGH COURT has approved the order of the Hon ble Karnataka High Court in the case of Sahara India Life Insurance 2019 (8) TMI 409 - DELHI HIGH COURT . Respectfully following the judicial precedents as aforementioned, we set aside the order of the Ld. First Appellate Authority and direct the AO delete the penalty. - Decided in favour of assessee.

Summary

Issues:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 for claiming unlawful deductions.
2. Validity of the notice issued for penalty proceedings.
3. Challenge to the penalty upheld by the Lower Authorities.

Levy of Penalty under Section 271(1)(c):
The case involved an appeal by the assessee against the order upholding the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer disallowed a deduction claimed by the assessee against provisions for bad debts and doubtful debts, resulting in a penalty of ?1,26,51,285. The AO found that the assessee knowingly claimed incorrect deductions, leading to concealment of income. The CIT (A) upheld the penalty, emphasizing the deliberate nature of the omission. The assessee contended that the negligence was on the part of the authorized representative and not deliberate. The Tribunal analyzed the submissions, noting that the penalty cannot be imposed solely based on confirmed additions to income; concealment or furnishing of inaccurate particulars must be proven. Citing legal precedents, the Tribunal concluded that the notice issued did not specify the charge against the assessee, rendering the penalty unsustainable. Consequently, the Tribunal directed the AO to delete the penalty.

Validity of Notice for Penalty Proceedings:
The validity of the notice issued for penalty proceedings was a crucial aspect of the case. The assessee argued that the notice did not specify whether there was concealment of income or furnishing of inaccurate particulars, as required by law. The Tribunal referred to the Hon'ble Karnataka High Court's ruling, emphasizing that the assessee must be aware of the charges to defend against them. The Tribunal highlighted that the notice failed to meet the legal requirements, following precedents that supported the assessee's position. Notably, the Tribunal stressed that penalty proceedings should not be initiated based on one limb and finding the assessee guilty of another. The Tribunal's decision to set aside the penalty was based on the inadequacy of the notice in informing the assessee of the charges against them.

Challenge to Penalty Upheld by Lower Authorities:
The challenge to the penalty upheld by the Lower Authorities focused on the correctness of the penalty imposition. The assessee raised grounds of appeal against the penalty under section 271(1)(c), arguing that the AO did not prove concealment of income or furnishing of inaccurate particulars. The Tribunal considered the arguments presented by both sides, emphasizing the necessity of proving specific charges for penalty imposition. The Tribunal's decision to delete the penalty was based on the failure of the notice to specify the charges against the assessee, aligning with legal principles and precedents that safeguard the assessee's right to a fair defense. The Tribunal's ruling favored the assessee, allowing the appeal and directing the deletion of the penalty.

This detailed analysis of the legal judgment addresses the issues of penalty imposition, notice validity, and the challenge to the penalty upheld by the Lower Authorities, providing a comprehensive overview of the case's legal intricacies and the Tribunal's decision.