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2021 (11) TMI 1003 - AT - Income TaxPenalty u/s 271(1)(c) - Defective notice - allegation of non specification of charge - CIT-A deleted the penalty levy - HELD THAT - As in the case of Manjunatha Cotton Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT observed that the levy of penalty has to be clear as to the limb under which it is being levied. As per Hon'ble High Court, where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. The Hon'ble High Court further held that the standard proforma of notice under section 274 of the Act without striking of the irrelevant clauses would lead to an inference of non-application of mind by the Assessing Officer. Coming to the instant case, as the mind of the AO while issuing notice u/s. 274 of the Act was not clear, under which limb the penalty supposed to be levied, and without specifying any charge under which the Assessee was to reply and to defend its case, the penalty is not leviable as held by the various Courts. Hence, we have no hesitation to uphold the impugned order. - Decided against revenue.
Issues:
- Appeal against order cancelling penalty under Income Tax Act, 1961 for A.Y. 2014-15. - Interpretation of penalty notice under Section 274 r.w.s. 271(1)(c) of the Act. - Validity of penalty notice specifying the limb under which penalty is being levied. Analysis: 1. The appeal was filed by the Revenue Department challenging the order cancelling the penalty under the Income Tax Act, 1961 for the assessment year 2014-15. The Revenue Department contended that the Commissioner of Income Tax (Appeals) erred in cancelling the penalty without considering relevant judicial precedents. 2. The Revenue Department argued that the Commissioner ignored decisions of various High Courts which held that a mere failure to strike off an inappropriate portion in a notice does not render it invalid. The Revenue Department claimed that even if there was a defect in the notice, it did not cause any prejudice to the Assessee, who clearly understood the purpose of the notice issued under Section 271 r.w.s. 274 of the Act. 3. The Commissioner, in deleting the penalty, relied on the judgment of the jurisdictional High Court in a specific case and other orders where penalties were deleted due to non-striking of irrelevant columns in the notice issued under Section 271 of the Act. The Commissioner followed the principle that when two reasonable constructions of a taxing provision are possible, the construction favoring the Assessee must be adopted. 4. The Hon'ble Apex Court's judgment in the case of M/s. SSA's Emerald Meadows was cited, where the Special Leave Petition filed by the Revenue against the High Court's decision was dismissed. The High Court's decision emphasized the importance of clearly specifying the limb under which the penalty is being levied in the notice to avoid ambiguity. 5. The Karnataka High Court's ruling in the case of Manjunatha Cotton & Ginning Factory highlighted the necessity for clarity in specifying the limb under which the penalty is imposed. The Court emphasized that a standard notice without appropriate markings could indicate a lack of application of mind by the Assessing Officer. 6. In the present case, the Assessing Officer failed to specify the limb under which the penalty was supposed to be levied in the notice issued under Section 274 of the Act. Due to this ambiguity and lack of clarity, the penalty was deemed not leviable by various Courts, including the Tribunal and High Courts. 7. Consequently, the Tribunal upheld the impugned order cancelling the penalty, stating that the penalty notice's ambiguity and lack of specificity rendered the penalty not leviable. As a result, the appeal filed by the Revenue Department was dismissed, affirming the decision of the Commissioner to cancel the penalty.
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