2022 (1) TMI 645 - AT - Income Tax

Penalty u/s 271(1)(c) - Validity of notice u/s 274 - as argued non deleting the appropriate clause under which the penalty is proposed to be imposed is either for filling of inaccurate particular of income or concealment of particulars of income - HELD THAT - We are inclined to accept the plea of the assessee that the notice issued for the purposes of imposition of penalty, which suffers from the vice of vagueness, does not provide sound legal basis for imposition of penalty. Consequently, we set aside the order of the CIT(A) and quash the impugned penalty order. - Decided in favour of assessee.

Issues Involved:
1. Validity of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.
2. Defectiveness of the notice issued under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961.
3. Application of judicial precedents to the case.

Detailed Analysis:

1. Validity of the Penalty Imposed Under Section 271(1)(c) of the Income Tax Act, 1961:
The primary issue in both appeals (ITA No. 5132/Del/2017 and ITA No. 5133/Del/2017) is the validity of the penalty imposed by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961. The CIT(A) upheld the penalties of ?1,67,942/- and ?3,58,595/- respectively, which the assessee contested. The assessee argued that the penalty notices were defective as they did not specify the exact nature of the default—whether it was for filing inaccurate particulars of income or for concealment of particulars of income.

2. Defectiveness of the Notice Issued Under Section 274 Read with Section 271(1)(c) of the Income Tax Act, 1961:
The assessee contended that the penalty notices were void as they were issued without striking off the inappropriate clause, making it unclear under which limb of Section 271(1)(c) the penalty was being imposed. This lack of clarity rendered the notices defective. The Tribunal admitted this additional ground for adjudication, referring to various judicial precedents, including the Hon'ble Supreme Court's decisions in CIT vs. Varas International and National Thermal Power Co. Ltd. vs. CIT.

The Tribunal noted that the penalty notices did not specify the nature of the default, thus suffering from non-application of mind and lack of satisfaction regarding the nature of the default. This defect was consistent with other cases within the same group (Rockland Group), where similar penalties were quashed due to defective notices.

3. Application of Judicial Precedents to the Case:
The Tribunal referred to several judicial precedents to support its decision. Notably, the Tribunal cited the Hon'ble High Court's decisions in PCIT vs. Sahara India Life Insurance Co. Ltd., CIT & Anr. v. Manjunatha Cotton and Ginning Factory, and Mohd. Farhan A. Shaikh vs. Dy. CIT. These cases established that a penalty notice under Section 274 read with Section 271(1)(c) is bad in law if it does not specify whether the penalty is for concealment of particulars of income or furnishing inaccurate particulars of income.

The Tribunal also referenced its own decisions in similar cases within the Rockland Group, where penalties were quashed due to defective notices. Specifically, the Tribunal cited the case of Radhika Surgical Pvt. Ltd. vs. ACIT, where the penalty was deleted on similar grounds.

In conclusion, the Tribunal found that the penalty notices in question were defective and did not provide a sound legal basis for imposing penalties. Consequently, the orders of the CIT(A) were set aside, and the penalties were quashed.

Conclusion:
The Tribunal allowed both appeals, quashing the penalty orders dated 20.06.2014 in ITA No. 5132/Del/2017 and ITA No. 5133/Del/2017. The Tribunal's decision was pronounced in the open Court on 07 January, 2022.

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