2021 (10) TMI 358 - AT - Income Tax

Levy of penalty u/s 271(1)(c) r/w Explanation 1(A) - Defective notice u/s 274 - non specification of one charge - addition of notional interest income accruing on alleged deposit with LGT Bank Liechtenstein in the name of Ambrunova Trust - HELD THAT - We find that the Assessing Officer did not strike off either of the two limbs namely whether the assessee concealed the particulars of income or furnished inaccurate particulars of such income, although, even if it was to be levied, it was a case of furnishing of inaccurate particulars of income. Also in the case of M/s.Bhavya Shashank Shanbhag v. Dy. Commissioner of Income Tax 2021 (7) TMI 381 - ITAT MUMBAI the Co-ordinate Bench has deleted the similar issue of penalty based on defective notices issued by the AO. - Decided in favour of assessee.

Summary

Issues:
Levy of penalty under section 271(1)(c) r/w Explanation 1(A) of the Act on addition of notional interest income accruing on alleged deposit with LGT Bank Liechtenstein in the name of Ambrunova Trust.

Analysis:
1. The assessee challenged the order passed by the Commissioner of Income Tax (Appeals) for the assessment years 2005-06, 2010-11, 2011-12, and 2012-13, regarding the levy of penalty under section 271(1)(c) r/w Explanation 1(A) of the Act on notional interest income from a deposit with LGT Bank Liechtenstein.

2. The Assessing Officer assessed the income based on unaccounted interest on deposits from LGT Bank, Liechtenstein, and initiated penalty proceedings. The assessee contended that there was no concealment of income and the addition was debatable, citing relevant legal precedents. The penalty was confirmed by the CIT(A), leading to the appeal before the ITAT Mumbai.

3. The ITAT Mumbai noted that the Assessing Officer did not specify whether the assessee concealed income or furnished inaccurate particulars, highlighting a recent Full Bench decision of the Bombay High Court on a similar issue. Referring to a Co-ordinate Bench decision, the ITAT observed that defective notices for penalty proceedings render them invalid.

4. Relying on legal principles emphasizing precision in penalty notices, the ITAT held that the penalty levied by the Assessing Officer for the respective assessment years should be deleted. The appeals filed by the assessee were allowed, leading to the deletion of penalties for the years in question.

5. The ITAT's decision was based on the requirement of clear and specific penalty notices, aligning with judicial interpretations emphasizing the importance of natural justice principles in penalty proceedings. The judgment highlighted the need for strict construction of penal provisions and the avoidance of ambiguity in penalty notices to protect the rights of the assessee.

6. The ITAT's ruling provided relief to the assessee by deleting the penalties imposed by the Assessing Officer for the assessment years 2005-06, 2010-11, 2011-12, and 2012-13. The decision underscored the significance of procedural fairness and adherence to legal requirements in penalty proceedings to uphold the principles of natural justice and fairness.