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2022 (8) TMI 484 - AT - Income TaxPenalty u/s 271 - Defective notice u/s 274 - non striking of irrelevant portions - whether no clear indication about the concealment of the particulars of income, nor there was clear indication for furnishing of inaccurate particulars of income? - HELD THAT - As referring to notice A.O has not striked off the irrelevant part in the notice to specify whether the notice was issued for levying penalty for concealment of particulars of income or furnishing inaccurate particulars of income. It is clear that the notice did not indicate whether there was concealment of particulars of income or furnishing of inaccurate particulars of such income. The A.O has mentioned both limbs of Sec. 271(1)(c) of the Act i.e concealed the particulars of income or furnished inaccurate particulars of income in the notice. Hon ble Supreme Court in the case of Principal Commissioner of Income Tax (Central) Vs. Goa Coastal Resorts and Recreation (P) Ltd. 2021 (8) TMI 1285 - SC ORDER held that where there was no record of satisfaction by A.O in relation to any concealment of income or furnishing of inaccurate particulars by assessee in notice issued for initiation of penalty proceedings under Section 271(1)(c), same being sine qua non for initiation of such proceedings. Hon ble High Court of Bombay in the case of Mohd. Farhan A. Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT held that where assessment order clearly records satisfaction for imposing penalty on one or other or both grounds mentioned in section 271(1)(c) a mere defect in notice, not striking off irrelevant matter would vitiate penalty proceedings. - Decided in favour of assessee.
Issues:
1. Validity of penalty order u/s 271(1)(c) of the Act. 2. Defect in the notice issued for penalty proceedings. Issue 1: Validity of penalty order u/s 271(1)(c) of the Act The appellant contested the penalty of Rs.1,13,97,870/- levied u/s 271(1)(c) of the Act, arguing that the penalty order was void-ab-initio due to lack of clear indication regarding concealment of income particulars or furnishing inaccurate particulars of income. The appellant's return of income was initially filed at Rs.3,08,17,813/-, but the assessment by the A.O. resulted in an amount of Rs.14,03,94,778/-. The A.O. treated the claimed long term and short term capital gains from share trading as business income totaling Rs.7,02,96,23,900/-. Additionally, the A.O. observed a claimed F & O loss of Rs.7,38,18,591/- set off against short term capital gains. The A.O. found that a significant portion of this loss was shown as sundry creditors with a firm, M/s N.K.B Securities, raising suspicions of non-genuineness. Despite efforts to verify the transactions, the A.O. concluded that the F & O loss was non-genuine, leading to the penalty under section 271(1)(c) of the Act. Issue 2: Defect in the notice issued for penalty proceedings The appellant challenged the validity of the penalty notice, citing a technical flaw in the notice issued u/s 274 r.w.s 271(1)(c) of the Act. The notice failed to strike off the irrelevant limb of Section 271(1)(c), leading to ambiguity regarding the grounds for the penalty. Citing legal precedents, including the decision of the Hon'ble Bombay High Court in Mohd. Farhan A. Shaikh Vs. DCIT, it was argued that such defects in the notice vitiate the penalty proceedings. The notice issued lacked specificity on whether the penalty was for concealment of income particulars or furnishing inaccurate particulars of income, as required by law. Drawing on the Supreme Court and Bombay High Court judgments, the ITAT concluded that the defective notice rendered the subsequent penalty proceedings invalid. The ITAT emphasized the need for strict construction of penal provisions and resolved the ambiguity in favor of the assessee, ultimately allowing the appeal based on the defective notice issued. In conclusion, the ITAT allowed the appeal of the assessee, quashing the penalty order due to the defective notice issued for the penalty proceedings. The judgment highlighted the importance of clarity and specificity in penalty notices to ensure the validity of subsequent penalty actions under the Income Tax Act.
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