2024 (2) TMI 1227 - AT - Income Tax

Penalty u/s. 271(1)(c) for under reporting income - defective notice - as alleged AO has failed to identify whether the proceeding was initiated for concealment or for furnishing inaccurate particulars of income . HELD THAT - The charge framed by AO to reach at a satisfaction that there is under reporting but not for, either concealment of income or furnishing of inaccurate particulars of income. The argument made by the ld. Senior DR that this is only a terminology to denote concealment, cannot be accepted because the legislature in its wisdom has made amendment in the provisions and instead of provisions of section 271(1)(c) of the Act, now brought in the statute book the provision of section 270A of the Act as introduced by the Finance Act, 2016 w.e.f. 01.04.2017 and applicable for and from 2017-18 i.e., penalty for underreporting or misreporting of income. It means that the AO has not at all applied his mind while initiating penalty and the specific charge is not framed for initiating penalty and hence, the argument of Senior DR that the notice issued u/s. 274 or show-cause notice u/s. 274 of the Act is not a statutory notice but it is a printed format. We cannot agree with the argument of the ld. Senior DR AO has not at all applied his mind or he is in a confused state of mind for that the penalty u/s. 271(1)(c) of the Act for concealment of income or may be furnishing of inaccurate particulars of income because no case is made out for that. Hence, we delete the penalty in all these assessment years. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act, 1961.
2. Whether the Assessing Officer (AO) properly specified the charge for which penalty was initiated.
3. Applicability of judicial precedents on the validity of penalty notices.

Summary:

1. Validity of Penalty Proceedings:
The primary issue in these appeals was the confirmation of the AO's action in levying penalty under Section 271(1)(c) of the Income Tax Act. The AO initiated penalty proceedings for "under reporting of income" as per the amended provisions of Section 270A of the Act, which came into effect from April 1, 2017. The assessee contested that the AO did not specify whether the penalty was for "concealment of particulars of income" or "furnishing of inaccurate particulars of income."

2. Specification of Charge:
The assessee argued that the penalty notice issued under Section 274 read with Section 271(1)(c) was invalid because the AO did not strike off the irrelevant portions, thereby failing to specify the exact charge. This argument was supported by the jurisdictional Madras High Court decision in the case of Babuji Jacob Vs. ITO, which held that a penalty notice must clearly indicate whether it is for concealment of income or furnishing inaccurate particulars.

3. Judicial Precedents:
The CIT(A) rejected the assessee's argument, citing various High Court decisions that non-striking of the limbs in the penalty notice would not invalidate the notice where both limbs are attracted. The CIT(A) distinguished the case of Babuji Jacob, stating that in the present case, both limbs (concealment of income and furnishing of inaccurate particulars) were attracted, and the assessee failed to offer any explanation.

Tribunal's Decision:
The Tribunal found that the AO did not apply his mind while initiating the penalty, as the specific charge was not framed. The Tribunal referred to the decision of the Madras High Court in Babuji Jacob, which mandates that the penalty notice must specify the exact charge. The Tribunal concluded that the AO's failure to do so invalidated the penalty proceedings. Consequently, the penalty was deleted for all assessment years involved.

Conclusion:
The appeals filed by the assessee were allowed on the jurisdictional issue, and the penalties levied under Section 271(1)(c) were deleted. The Tribunal did not address the merits of the case as the jurisdictional issue was sufficient to decide the appeals.