2024 (3) TMI 1073 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - Defective notice u/s 274 - non striking of irrelevant clauses - Estimation of income on bogus purchases - HELD THAT - A perusal of the notice reveals that it is in a pre-drafted Performa and mentions both limbs of section 271(1)(c) of the Act as. 'have Concealed the particulars of your income or Furnished inaccurate particulars of such income.' The Assessing Officer has not struck off irrelevant clauses in the notice. As decided in Mohd. Farhan A. Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT (LB) held that where AO clearly records satisfaction for imposing penalty on one or other or both grounds mentioned in section 271(1)(c) of the Act, non-striking of irrelevant matter would render the notice defective and such defective notice vitiate the penalty proceedings. In the present case, we find that in assessment order the AOhad initiated penalty proceedings for furnishing inaccurate particulars of income only. Since, both limbs i.e. concealed particulars of income and furnished inaccurate particulars of income are recorded in the notice, the notice is defective. The penalty levied u/s. 271(1)(c) is liable to be deleted on the ground of defective notice as well. Decided in favour of assessee.

Summary

Issues involved:
The judgment involves the confirmation of penalty u/s. 271(1)(c) of the Income Tax Act, 1961 for the Assessment Year 2009-10 based on addition of alleged bogus purchases, and the validity of the penalty notice u/s. 274 r.w.s 271 of the Act.

Confirmation of Penalty u/s. 271(1)(c):
The Assessing Officer made an addition on estimations for alleged bogus purchases, which was later reduced to 12.5% by the CIT(A). The penalty proceedings u/s. 271(1)(c) were initiated based on this addition. The assessee argued that penalty cannot be levied on additions made purely on estimations, citing legal precedents. The Department contended that the assessee failed to prove the genuineness of the purchases. The Tribunal noted that the addition was solely based on estimations, citing decisions by various High Courts and Tribunals. Following the legal precedents, the Tribunal held the penalty u/s. 271(1)(c) to be unsustainable and directed the Assessing Officer to delete the penalty.

Validity of Penalty Notice u/s. 274 r.w.s 271:
The penalty notice issued to the assessee mentioned both limbs of section 271(1)(c) of the Act without striking off irrelevant clauses. Citing a judgment by the Jurisdictional High Court, the Tribunal concluded that a defective notice vitiates the penalty proceedings. Since the notice mentioned both limbs but the penalty was initiated for furnishing inaccurate particulars of income only, the Tribunal deemed the notice defective. Consequently, the penalty u/s. 271(1)(c) was held liable to be deleted on the ground of a defective notice.

This judgment by the Appellate Tribunal ITAT Mumbai addressed the issues of confirming penalty u/s. 271(1)(c) based on estimations of alleged bogus purchases and the validity of the penalty notice. The Tribunal ruled in favor of the assessee, directing the deletion of the penalty due to it being unsustainable on estimations and the notice being defective.