2022 (6) TMI 835 - AT - Income Tax

Penalty u/s 271(1)(c) - Defect in notice u/s 274 - Addition towards difference in silver stock - assessee was having excess stock of silver of 30,423.95 grams - Neither any surrender was made on this score nor such an income was offered in the return filed - addition was made by the AO for such sum along with that on account of excess Gold found during the survey and Cash difference - HELD THAT - Notice u/s. 274 r.w.s. 271(1)(c) was initially issued on 07-03-2014 at the time of completion of the assessment by keeping both the limbs intact, namely, concealed the particulars of income and furnishing of inaccurate particulars of income . After the passing of the order by the ld. CIT(A) in quantum proceedings, the AO issued notice u/s. 274 r.w.s. 271(1)(c) dated 05-03-2018 before imposing the penalty. This notice also talks of both the limbs of section 271(1)(c), namely, concealing the particulars of income and furnishing of inaccurate particulars of income . Thus, it is apparent that as against the sole addition of excess stock of silver, the AO issued notice u/s. 274 by keeping both the limbs of penalty u/s. 271(1)(c) alive As decided in MR. MOHD. FARHAN A. SHAIKH 2021 (3) TMI 608 - BOMBAY HIGH COURT defect in notice of not striking out the irrelevant words vitiates the penalty even though the AO had properly recorded the satisfaction for the imposition of penalty in the order u/s. 143(3) . As it is clear 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.- Decided in favour of assessee.

Summary

Issues:
Penalty imposition under section 271(1)(c) of the Income-tax Act, 1961 based on excess stock of silver found during survey action. Legality of penalty notice under section 274 with both limbs intact. Applicability of judgments by the Bombay High Court regarding defects in penalty notices.

Analysis:
The appeal pertains to the imposition of a penalty of Rs. 5,07,650 under section 271(1)(c) of the Income-tax Act, 1961 by the Assessing Officer (AO) based on the excess stock of silver found during a survey action conducted under section 133A of the Act. The penalty was confirmed by the CIT(A)-4, Pune. The key issue in this case is whether the penalty under section 271(1)(c) is sustainable when the penalty notice under section 274 retains both limbs - "concealing the particulars of income and furnishing of inaccurate particulars of income" - despite the penalty being imposed only with reference to one of them.

Upon review of the relevant material, it was observed that the AO issued the notice under section 274 keeping both limbs of penalty under section 271(1)(c) intact, even though the penalty was imposed solely on the basis of the excess stock of silver. The legal question raised was whether such a penalty notice is valid. The Full Bench of the Bombay High Court in the case of Mohd. Farhan A. Shaikh Vs. Dy. CIT and in Pr. CIT Vs. Golden Peace Hotels and Resorts (P.) Ltd. held that a defect in the notice, where irrelevant words are not struck off, renders the penalty invalid, despite the AO's satisfaction recorded in the assessment order.

Citing the legal precedents and the legal position established by the Bombay High Court judgments, the Appellate Tribunal concluded that when the penalty charge is not properly set out in the notice under section 274, and both limbs remain without striking off the inapplicable one, the penalty order is vitiated. Consequently, in line with the Full Bench judgment, the impugned penalty was overturned, and the direction was given to delete the penalty imposed by the AO.

In the final order, the appeal was allowed, and the penalty imposed under section 271(1)(c) was set aside. The decision was pronounced in the Open Court on 9th June 2022.