2022 (5) TMI 734 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice u/s 274 - no specific charge towards either concealing the particulars of income or furnishing of inaccurate particulars of income was made - HELD THAT - Where the charge is not properly set out in the notice u/s 274, viz., both the limbs stand therein without striking off the inapplicable limb, the penalty order gets vitiated. Turning to the facts of the extant case, we find from the notice u/s 274 of the Act that the AO retained both the limbs, whereas penalty was imposed only with reference to one of them. Respectfully following the above Full Bench judgment of the Hon ble jurisdictional High Court, 2021 (3) TMI 608 - BOMBAY HIGH COURT we overturn the impugned order on this legal issue and direct to delete the penalty to the extent imposed by the AO. Enhancement of penalty directed by the ld. CIT(A) - It is clear from the mandate of section 251(1)(b), that CIT(A) has been conferred with a power to enhance the penalty already imposed by AO. Once section 251(1)(b) empowers CIT(A) to enhance the penalty in unambiguous terms, no fetters can be brought in to check such a power by a claim that CIT(A) cannot enhance the penalty without making enhancement in the income in the quantum appeal. Having found, in principle, that CIT(A) is empowered to enhance the penalty, now we turn to the factual panorama of the case for ascertaining if the penalty was rightly directed to be enhanced. At this stage, it is relevant to mention that the AO initiated penalty without striking out the irrelevant limb of section 271(1)(c), which we have held supra, has the consequence of vitiating the penalty order. Once the penalty order itself does not stand because of wrong issuance of notice u/s.274, the power of enhancement of penalty conferred by section 251(1)(b) automatically becomes meaningless because this provision talks of vary it so as to enhance the penalty. Varying the penalty for enhancement pre-supposes the existence of some valid penalty which is subject to variation. If the penalty ceases to exist in entirety, it cannot be varied so as to make enhancement. In view of the fact that the penalty imposed by the AO has been held above to be vitiated, there can be no question of any enhancement thereto. We, therefore, hold that the ld. CIT(A) was not justified in confirming and further directing to enhance the penalty imposed by the AO u/s.271(1)(c) of the Act. Assessee appeal allowed.

Summary

Issues:
- Penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2006-07.
- Defect in the notice for levy of penalty.
- Enhancement of penalty directed by the CIT(A).

Detailed Analysis:

1. Penalty Imposed under Section 271(1)(c): The case involved penalty proceedings initiated by the Assessing Officer (AO) under section 271(1)(c) of the Income-tax Act, 1961. The penalty was levied on two items of additions, namely introduction of cash and on-money paid on purchase of lands. The AO asserted that these additions constituted 'furnishing of inaccurate particulars of income' rather than 'concealment of particulars of income'. The Tribunal affirmed these additions as the basis for the penalty.

2. Defect in the Notice for Levy of Penalty: The notice issued by the AO under section 274 of the Act contained both limbs of section 271(1)(c) without striking out the irrelevant limb. This defect in the notice, as per legal precedents, vitiates the penalty even if the AO properly recorded the satisfaction for the penalty in the assessment order. Citing relevant judgments, the Tribunal overturned the penalty order on this legal issue and directed the deletion of the penalty to the extent imposed by the AO.

3. Enhancement of Penalty Directed by the CIT(A): During the first appellate proceedings, the CIT(A) observed that the penalty should have been levied on the additional income offered in the return under section 153A compared to the income declared in the original return under section 139(1). The CIT(A) found a differential income that the AO omitted to consider while levying the penalty. However, the Tribunal held that the CIT(A) was not justified in confirming and directing to enhance the penalty imposed by the AO under section 271(1)(c) as the penalty order itself was vitiated due to the defect in the notice.

4. Legal Principles and Conclusion: The Tribunal highlighted legal principles regarding the power of the CIT(A) to enhance penalties and the consequences of defects in penalty notices. It was emphasized that the CIT(A) can enhance penalties already imposed by the AO, but in this case, the penalty order was invalidated due to the defect in the notice. Therefore, the Tribunal allowed the appeal, holding that the penalty imposed by the AO and further directed to be enhanced by the CIT(A) was not sustainable.

In conclusion, the Tribunal allowed the appeal, emphasizing the importance of correctly setting out charges in penalty notices and ensuring that penalties are imposed in accordance with legal provisions and precedents.