2022 (8) TMI 1079 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice u /s 274 - Addition on account of cash credits u/s 68 - allegation of non specicication of clear charge - HELD THAT - There is no dispute with regard to the fact that the notice issued u/s 271(1)(c) of the Act is defective. The AO failed to strike down the correct limb under which he sought to impose penalty. Undisputedly, the AO was required to specify the charge. The Revenue has not pointed out from the record that any notice u/s 271(1)(c) of the Act specifying the particular charge was issued to the assessee. There is a complete non-application of mind by the assessing authority hence, has simply put her signature without stating the guilt of the assessee. The case laws as relied by Ld. Sr. DR are not applicable on the facts of the present case. On the contrary, the ratio of judgement of the Hon ble Delhi High Court in the case of Sahara India Life Insurance Company 2019 (8) TMI 409 - DELHI HIGH COURT is squarely applicable. We hereby quash the penalty order and impugned penalty is thus, deleted. The grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Furnishing of inaccurate particulars of income.
3. Validity of the notice issued under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961.
4. Application of judicial precedents in penalty proceedings.
5. Non-application of mind by the assessing authority.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The assessee's appeal challenges the imposition of a penalty amounting to Rs. 6,00,232/- under Section 271(1)(c) by the DCIT, Circle 13(1), New Delhi. The penalty was imposed following the assessment order dated 08.03.2013, which added Rs. 15,69,500/- on account of cash credits under Section 68 and Rs. 17,83,073/- on account of credit card payments. The AO initiated penalty proceedings under Section 271(1)(c) and subsequently imposed the penalty.

2. Furnishing of Inaccurate Particulars of Income:
The CIT(A) upheld the AO's decision, holding that the appellant furnished inaccurate particulars of income, specifically regarding the addition under Section 68 related to cash credits in the bank account amounting to Rs. 19,42,500/-. The appellant argued that there was no concealment on their part and that the imposition of the penalty was illegal.

3. Validity of the Notice Issued under Section 274 read with Section 271(1)(c):
The appellant contended that the penalty notice issued under Section 271(1)(c) was defective as it did not specify the charge, i.e., whether it was for concealment of income or for furnishing inaccurate particulars of income. The Tribunal found that the notice was indeed defective, as the AO failed to strike down the correct limb under which the penalty was sought to be imposed. The Tribunal emphasized that the AO must specify the charge clearly, and the failure to do so indicated a non-application of mind.

4. Application of Judicial Precedents in Penalty Proceedings:
The Tribunal considered various judicial precedents cited by both parties. The Revenue relied on several Supreme Court and High Court decisions, emphasizing that penalty under Section 271(1)(c) is a civil liability and that the AO's failure to strike off the incorrect limb in the penalty notice does not automatically invalidate the penalty. However, the Tribunal found the appellant's reliance on the Supreme Court judgment in Pr.CIT vs. GOA Coastal Resorts and Recreation Pvt. Ltd. and the Delhi High Court judgment in CIT vs. Sahara India Life Insurance Company Ltd. to be more pertinent. These judgments underscored the necessity of specifying the charge in the penalty notice.

5. Non-application of Mind by the Assessing Authority:
The Tribunal concluded that the AO's failure to specify the charge in the penalty notice demonstrated a complete non-application of mind. The AO had merely signed the notice without stating the specific guilt of the assessee. This lack of clarity and specificity rendered the penalty notice defective.

Conclusion:
The Tribunal, after considering the facts and relevant judicial precedents, quashed the penalty order due to the defective notice issued under Section 271(1)(c). The Tribunal held that the penalty could not be sustained as the AO had failed to specify the particular charge, demonstrating non-application of mind. Consequently, the appeal of the assessee was allowed, and the impugned penalty was deleted. The order was pronounced in the open Court on 24th August 2022.