2022 (10) TMI 713 - AT - Income Tax

Penalty u/s. 271(1)(c) - defective notice u/s 274 - disallowance of deduction u/s. 24 claimed by the Assessee @ 30% of the annual letable value of the rented property - Addition u/s. 40(ia) of the Act on account of non-deduction of tax at source on payments of 20,000 Euro made to a foreign entity for development of unique designs and patterns of various garments - HELD THAT - The penalty provisions of section 271(1)(c) of the Act are attracted, where the Assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is also a well-accepted proposition that the aforesaid two limbs of section 271(1)(c) of the Act carry different meanings - it is imperative for the Assessing Officer to specify the relevant limb so as to make the Assessee aware as to what is the charge made against him so that he can respond accordingly. Having regard to the manner in which the Assessing Officer has issued the notices referred above under section 274 r.w.s. 271(1)(c) of the Act without specifying the limb under which the penalty proceeding has been initiated and proceeded with, apparently goes to prove that notice in this case has been issued in a stereotyped manner without applying mind which is bad in law, hence can not be considered valid notice sufficient to impose penalty u/s 271(1)(c) of the Act and therefore we are of the considered view that under these circumstances, the penalty is not leviable as held by the various Courts including the Hon ble Apex Court and hence, we have no hesitation to delete the penalty under consideration, levied by the AO and affirmed by the Ld. Commissioner - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of deduction u/s. 24 of the Income-tax Act claimed by the Assessee.
2. Non-deduction of tax at source on payments made to a foreign entity for development of designs.
3. Imposition of penalty under section 271(1)(c) for furnishing inaccurate particulars of income.
4. Legal issue regarding the validity of penalty notice under section 274 r.w.s. 271(1)(c) of the Act.

Issue 1: Disallowance of deduction u/s. 24:
The Assessing Officer disallowed a deduction claimed by the Assessee under section 24 of the Act on the premise that the Assessee had already claimed depreciation on the same property. The Assessee contended that it was entitled to both deductions. The Commissioner accepted the alternative plea of the Assessee, directing the Assessing Officer to recompute the penalty by allowing the statutory deduction and disallowing the depreciation. The Assessee appealed against the penalty order.

Issue 2: Non-deduction of tax at source:
The Assessing Officer made an addition on account of non-deduction of tax at source on payments made to a foreign entity for development of designs. The Assessee failed to deduct tax at source on the payment, leading to the disallowance of an amount under section 40(ia) of the Act. The penalty was imposed for concealment of income and furnishing of inaccurate particulars of income.

Issue 3: Imposition of penalty under section 271(1)(c):
The Assessing Officer initiated penalty proceedings under section 271(1)(c) for inaccurate particulars of income. The Assessee contended that the disallowances did not constitute concealment of income. The penalty was imposed for concealing income and furnishing inaccurate particulars. The Commissioner affirmed the penalty imposed on non-deduction of tax at source but accepted the Assessee's plea regarding the disallowance of deduction u/s. 24.

Issue 4: Legal issue regarding penalty notice validity:
The Assessee challenged the imposition of penalty based on the penalty notice, arguing that it did not specify the particular limb under which the penalty proceedings were initiated. The Assessee relied on various judgments highlighting the importance of specifying the relevant limb of section 271(1)(c) to make the Assessee aware of the charges. The Tribunal and various High Courts held that a notice without specifying the relevant limb is bad in law and cannot be considered valid to impose a penalty. The penalty was deemed not leviable due to the improper issuance of the notice.

In conclusion, the Appellate Tribunal allowed the Assessee's appeal, deleting the penalty imposed under section 271(1)(c) due to the invalidity of the penalty notice. The legal issue of notice validity was crucial in determining the penalty's enforceability, leading to the decision in favor of the Assessee. The judgment emphasized the necessity of properly specifying the relevant limb of section 271(1)(c) in the penalty notice for a valid imposition of penalties.