2023 (3) TMI 779 - AT - Income Tax

Penalty u/s 271(1)(c) read with section 274 - defective notice - non specification of clear charge - whether it was issued to explain the charge of concealment of particulars of income or for furnishing inaccurate particulars of income? - HELD THAT - In the instant case, AO in the assessment order initiated the penalty under section 271(1)(c) of the Act for concealing the particulars of income and furnishing inaccurate particulars of Income and thereafter issued the notices referred above u/s 274 read with 271(1)(c) of the Act without specifying any particular limb of the penalty and finally imposed the penalty for concealment of income only, on account of unsecured loan. The Hon'ble Apex Court in case of M/s. SSA's Emerald Meadows 2016 (8) TMI 1145 - SC ORDER dismissed the Special Leave Petition filed by the Revenue against the judgment rendered by Hon'ble High Court of Karnataka whereby identical issue was decided in favour of the Assessee. In the case of Manjunatha Cotton Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT observed where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. The Hon'ble High Court also held that the standard proforma of notice under section 274 of the Act without striking of the irrelevant clause would lead to an inference of non-application of mind by the Assessing Officer and levy of penalty would suffers from non-application of mind Thus in the present case AO has issued the notice referred to 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) - Decided in favour of assessee.

Summary

Issues involved:
The judgment involves the imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 for concealing income and furnishing inaccurate particulars of income, based on a notice that did not specify the particular limb of penalty. The main issue is whether the penalty is valid in such circumstances.

Facts and Decision:
The Assessing Officer made additions and initiated penalty proceedings against the Assessee for unsecured loans, personal expenses, and disallowance of depreciation on a car. The penalty was levied at 100% of the tax sought to be evaded on the unsecured loans. The Assessee challenged the penalty order dated 26.09.2014, which was dismissed by the Commissioner of Income Tax (Appeals) on 03.12.2015. The Assessee then appealed against this order.

Legal Issue Analysis:
The Assessee argued that the penalty notice issued by the Assessing Officer was vague as it did not specify the particular limb of penalty under which it was issued. The Assessee relied on various judgments to support this contention. On the other hand, the Department supported the orders passed by the authorities below, claiming no perversity, impropriety, or illegality in the order.

Legal Precedents:
The judgment referred to the case of M/s. SSA's Emerald Meadows where the High Court dismissed the Revenue's appeal, emphasizing the importance of specifying the limb of penalty in the notice. The Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory also highlighted the necessity of appropriately marking the notice when invoking the first limb of concealment. The Delhi High Court in the case of M/s. Sahara India Life Insurance Company Ltd. reiterated that the notice must specify the limb of penalty under section 271(1)(c) to be valid.

Judgment and Conclusion:
The Tribunal found that the penalty notice issued without specifying the relevant limb was issued in a stereotyped manner without applying mind, rendering it invalid. As per legal precedents and the specific facts of the case, the penalty was deemed not leviable. Therefore, the penalty imposed by the Assessing Officer and affirmed by the Commissioner was deleted. The appeal filed by the Assessee was allowed, and the penalty was set aside.

Final Decision:
In conclusion, the Tribunal allowed the appeal filed by the Assessee, deleting the penalty imposed under section 271(1)(c) of the Income Tax Act. The judgment emphasized the importance of specifying the limb of penalty in the notice to ensure its validity and upheld the legal position established by various Courts, including the Honorable Apex Court.