2022 (10) TMI 403 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice u/s 274 - non striking of irrelevant portion of notice - HELD THAT - As it is settled position of law, as held in the case of Mohd. Farhan A. Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT 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. Here in the assessee s case what the talk about striking off irrelevant limb/charge in the penalty notice, the penalty notice itself was not issued to the assessee, before imposition of penalty by ld CIT(A) - Therefore, the penalty proceedings, initiated against the assessee does not have any leg to stand. We note that Tribunal has deleted the quantum addition, vide order in case of assessee 2022 (5) TMI 1461 - ITAT SURAT - We find that once, the addition made in the assessment order is deleted by Tribunal, the satisfaction of CIT(A) that the assessee has taxable income, is held be wrong. Therefore, penalty imposed on such satisfaction would not survive. Hence, penalty needs to be deleted. Therefore, we delete the penalty imposed u/s 271(1)(c) of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Validity of penalty proceedings initiated under section 271(1)(c) of the Income Tax Act, 1961.
3. Merits of the penalty imposed under section 271(1)(c) of the Act.

Analysis:

Condonation of Delay in Filing the Appeal:
The appeals were barred by limitation by 1266 days. The assessee filed an affidavit explaining the delay, stating that they were unaware of the penalty proceedings due to non-receipt of a penalty notice. The Tribunal considered the affidavit and the explanation provided, noting that the assessee was under a bona fide belief that no penalty had been initiated. The Tribunal referred to the Supreme Court judgment in M. K. Prasad vs P. Arumugam, emphasizing that "sufficient cause" should receive a liberal construction to advance substantial justice. Consequently, the Tribunal condoned the delay, finding the reasons convincing and sufficient.

Validity of Penalty Proceedings:
The assessee argued that no penalty notice under section 271(1)(c) was issued, rendering them unaware of the penalty initiation. The Tribunal noted that the CIT(A) initiated the penalty under Explanation 3 to section 271(1)(c) during appellate proceedings without issuing a notice, which is mandatory. The Tribunal emphasized the principle of natural justice, stating that the assessee should be informed of the charges against them. Citing the Bombay High Court's decision in Mohd. Farhan A. Shaikh, the Tribunal held that the absence of a penalty notice vitiates the penalty proceedings, making them bad in law.

Merits of the Penalty:
On merits, the assessee contended that there was no suppression of material facts regarding land premium payable, cost of acquisition, improvement, and transfer. The Tribunal noted that the CIT(A) had earlier deleted the penalty for these additions, relying on the Supreme Court's judgment in Reliance Petro Products Ltd., which held that mere making of a claim does not amount to concealment. Additionally, the Tribunal observed that it had deleted the quantum addition in the assessee's case in a separate order, thereby nullifying the basis for the penalty. Consequently, the Tribunal concluded that the penalty imposed under section 271(1)(c) could not survive and should be deleted.

Conclusion:
The Tribunal allowed the appeals, condoning the delay and quashing the penalty proceedings under section 271(1)(c) due to the non-issuance of a penalty notice and the deletion of the quantum addition. The decision was applied mutatis mutandis to the other appeals for the assessment years 2005-06 and 2006-07.