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2023 (4) TMI 329 - AT - Income TaxPenalty u/s 271(1)(c) - Invalid notice u/s 274 - Non specification of clear charge - addition being the 25% of the bogus purchases - HELD THAT - Bare perusal of the notice issued in this case by the AO goes to prove that the AO at the time of issuing the notice was not satisfied if he was initiating the penalty against the assessee for concealing particulars of his income or for furnishing inaccurate particulars of such income. This issue has been decided in Md. Farhan A Sheikh 2021 (3) TMI 608 - BOMBAY HIGH COURT and held that penalty under section 271(1)(c) of the Act is not leviable when invalid notice as in the instant case has been issued to the assessee. Since the AO has failed to initiate the penalty proceedings under section 271(1)(c) of the Act by issuing the valid notice, penalty levied by the AO and confirmed by the Ld. CIT(A) is not sustainable in the eyes of law as the assessee has never been informed about the charges framed to initiate the penalty proceedings through statutory notice. Decided in favour of assessee.
Issues:
1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act, 1961 by the Appellate Tribunal. 2. Validity of the notice issued by the Assessing Officer for initiating penalty proceedings. Issue 1: Confirmation of Penalty under Section 271(1)(c): The appellant sought to set aside the penalty confirmed by the Commissioner of Income Tax (Appeals) under section 271(1)(c) of the Income Tax Act for the assessment year 2009-10. The appellant contended that there was no concealment of income as the purchases were genuine, and the adhoc disallowance was not a case of concealment or furnishing inaccurate particulars. The appellant also raised a legal ground regarding the specificity of the charge for the penalty. The Tribunal allowed the additional legal ground raised by the appellant, emphasizing its necessity for adjudication. The AO had added a specific amount to the total income of the assessee, and penalty proceedings were initiated under section 271(1)(c) based on this addition. The CIT(A) confirmed the penalty, leading the assessee to appeal before the Tribunal. Issue 2: Validity of Notice for Penalty Proceedings: The appellant relied on a decision by the Bombay High Court in Md. Farhan A Sheikh vs. ACIT, arguing that the penalty under section 271(1)(c) cannot be levied based on an invalid notice. The notice issued by the AO did not clearly specify the grounds for initiating the penalty. The Tribunal examined the notice and found that it did not satisfy the requirement of informing the assessee about the charges framed for the penalty proceedings. Citing the Bombay High Court's judgment, the Tribunal held that a penalty proceeding must stand on its own and be informed through a valid statutory notice. As the AO failed to issue a valid notice specifying the charges, the penalty levied and confirmed by the authorities was deemed unsustainable in the eyes of the law. Therefore, the Tribunal allowed the appeal and ordered the deletion of the penalty. In conclusion, the Appellate Tribunal allowed the appeal, setting aside the penalty levied under section 271(1)(c) of the Income Tax Act, 1961, based on the invalid notice issued by the Assessing Officer. The decision emphasized the importance of a valid statutory notice specifying the grounds for penalty proceedings in accordance with legal requirements.
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