2022 (11) TMI 477 - AT - Income Tax

Levy of Penalty u/s 271(1)(c) - Defective notice u/s 274 - as argued AO has not struck the appropriate words i.e. Concealed the particulars of Income or furnished Inaccurate particulars - HELD THAT - AO has not struck the appropriate in applicable words in the penalty notice. Also as mentioned in earlier para, in the assessment order the AO has not mentioned whether the penalty is initiated for concealment or filling inaccurate particulars. This issue goes to the root of initiation of penalty. Therefore, respectfully following the Hon ble jurisdictional High Court, it is held that the penalty u/s.271(1)(c) is not maintainable. Hence, the Assessing Officer is directed to delete the penalty u/s.271(1)(c). Accordingly, appeal of the Assessee is allowed.

Issues:
1. Erroneous levy of penalty under section 271(1)(c)
2. Penalty proceedings under section 271(1)(c) are invalid
3. Erroneous levy of penalty under explanation 7 to section 271(1)(c)
4. Erroneous levy of penalty for furnishing of inaccurate particulars u/s 271(1)(c)

Analysis:

Issue 1: Erroneous levy of penalty under section 271(1)(c)
The Assessee challenged the penalty levied under section 271(1)(c) for an amount of INR 38,37,270. The main contention was that the penalty was imposed without specifying the reason for penalty initiation. The Assessee argued that the penalty notice was ambiguous as it did not clearly mention the grounds for penalty initiation. The Tribunal observed that the Assessing Officer (AO) had failed to specify whether the penalty was for filing inaccurate particulars of income or for concealment of income. Citing a relevant High Court decision, the Tribunal held that the penalty order was bad in law due to the defective notice issued by the AO. Consequently, the Tribunal directed the AO to delete the penalty under section 271(1)(c).

Issue 2: Penalty proceedings under section 271(1)(c) are invalid
The Assessee contended that the penalty proceedings under section 271(1)(c) were invalid as the AO did not specify the reason for penalty initiation. The Tribunal noted that both the penalty notice and the assessment order did not clearly indicate whether the penalty was for concealment of income or for furnishing inaccurate particulars. Relying on a relevant High Court decision, the Tribunal held that the lack of specificity in the penalty initiation notice vitiated the penalty proceedings. Consequently, the Tribunal ruled in favor of the Assessee and directed the deletion of the penalty under section 271(1)(c).

Issue 3: Erroneous levy of penalty under explanation 7 to section 271(1)(c)
The Assessee challenged the penalty levied under explanation 7 to section 271(1)(c) for an amount of INR 38,37,270, arguing that due diligence was exercised in determining the arms' length price of international transactions. However, the Tribunal did not delve into this issue as the penalty under section 271(1)(c) was found to be invalid due to the lack of specificity in the penalty initiation notice.

Issue 4: Erroneous levy of penalty for furnishing of inaccurate particulars u/s 271(1)(c)
The Assessee disputed the penalty imposed for furnishing inaccurate particulars of income under section 271(1)(c). The Tribunal noted the Assessee's argument that the transfer pricing adjustment arose from a difference of opinion on the inclusion of comparables, which was not contested to avoid further disputes. However, the Tribunal did not address this issue in detail as the penalty under section 271(1)(c) was deemed invalid due to the defective penalty initiation notice.

In conclusion, the Tribunal allowed the Assessee's appeal, directing the Assessing Officer to delete the penalty imposed under section 271(1)(c) due to the lack of specificity in the penalty initiation notice, rendering the penalty proceedings invalid.

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