2023 (12) TMI 28 - AT - Income Tax

Validity of Penalty proceeding u/s. 271(1)(c) - Non specification of clear charge - non striking of the irrelevant limb - validity of the notice issued u/s. 274 r.w.s. 271 challenged on the ground that non striking of the irrelevant limb in the notice would vitiate the penalty proceedings - HELD THAT - The jurisdictional ground raised by the assessee is supported by the decision of Mohd. Farhan A. Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT which has held that non striking on the irrelevant limb would vitiate the penalty proceedings in toto . As it is a settled proposition of law that the ld. A.O. ought to have struck off the irrelevant limb while issuing the penalty notice, we are of the considered view that the penalty levied by the ld. A.O. and partly confirmed by the ld. CIT(A) has to be deleted. Thus non striking of the irrelevant limb has been held to be violation of the mandatory condition, which in turn violates the principle of natural justice. Assessee should be aware of the exact charge for which the penalty proceeding has been initiated in order to entitle him to contend on the said charges. The non striking of the irrelevant limb amounts to vagueness and ambiguity in the notice which tantamount to non application of mind by the ld. A.O. It also does not give the assessee a proper opportunity of hearing manifested in the provision of section 274 - Thus penalty deleted - Decided in favour of assessee.

Summary

Issues involved: Appeal challenging penalty levied under section 271(1)(c) of the Income Tax Act for Assessment Years 2002-03 and 2003-04.

Summary of Judgment:

Issue 1: Penalty under section 271(1)(c) of the Act
- The appeals were filed by both the Revenue and the assessee regarding the penalty levied under section 271(1)(c) of the Act.
- The assessee, a non-resident company, was engaged in managing sporting events and selling commercial rights.
- The Assessing Officer (A.O.) reopened the case due to discrepancies in income disclosure, leading to a penalty of Rs. 35,41,86,182 imposed by the A.O.
- The CIT(A) partly allowed the appeal, but both parties challenged the decision.
- The AR argued that the penalty notice was defective as it did not specify the relevant limb for the penalty.
- The Tribunal admitted the additional ground raised by the assessee based on legal precedents, stating that non-striking of the irrelevant limb in the notice vitiates penalty proceedings.
- Citing legal principles, the Tribunal held that the penalty should be deleted due to the defective notice, as it violated natural justice principles.
- The Tribunal directed the A.O. to delete the penalty, rendering other grounds of appeal moot.
- Consequently, the appeal by the assessee was allowed, and the Revenue's appeal was dismissed.

Separate Judgment:
- In a separate judgment for ITA No. 171/Mum/2008, the appeal filed by the Revenue was dismissed based on similar facts and legal reasoning as in the other appeals.

Conclusion:
- The Tribunal ruled in favor of the assessee, directing the deletion of the penalty due to a defective notice, emphasizing the importance of procedural fairness and natural justice in penalty proceedings.