2022 (8) TMI 1532 - AT - Income Tax

Validity of the penalty notice u/s 271(1)(c) - Defective notice - appropriate words i.e. concealed particulars of income or filed inaccurate particulars of income, were not struck off by the AO - HELD THAT - In the case under consideration the AO has not struck the appropriate in applicable words in the penalty notice. Also as mentioned in the assessment order the AO has not mentioned whether the penalty is initiated for concealment or filling inaccurate particulars. If the AO intended to initiate the penalty on account of both for Concealment of Income and filling inaccurate particulars of Income then the AO should have specifically used the word and between the words Concealment of Income , filling inaccurate particulars of income , in the penalty notice. This issue goes to the root of initiation of penalty. Therefore, respectfully following it is held that the penalty u/s 271(1)(c) is not maintainable. Hence, the AO is directed to delete the penalty u/s 271(1)(c). We do not intent to comment on the merits of the case as the penalty has been deleted on the basis of notice itself. Therefore, Ground filed by the Revenue are dismissed.

Summary

Issues Involved:
1. Validity of the penalty notice under Section 271(1)(c) of the Income Tax Act, 1961.
2. The applicability of the penalty for concealment of income or furnishing inaccurate particulars of income.
3. Procedural compliance of the penalty notice.
4. Merits of the penalty imposed.

Issue-wise Detailed Analysis:

1. Validity of the Penalty Notice under Section 271(1)(c):
The core issue is whether the penalty notice issued under Section 271(1)(c) was defective due to the failure to strike off irrelevant portions, thereby not specifying whether the penalty was for concealment of income or furnishing inaccurate particulars of income. The Ld. CIT (A) followed the decision of the Karnataka High Court in M/s. Manjunatha Cotton and Ginning Factory (359 ITR 565), which held that such a notice is defective and the penalty is not maintainable. The Hon'ble Madras High Court in Babuji Jacob v. ITO (124 taxmann.com 363) and the Hon'ble Bombay High Court in Ganga Iron & Steel Trading Co. (135 taxmann.com 244) have similarly held that failure to specify the exact charge in the penalty notice renders it invalid.

2. Applicability of the Penalty for Concealment or Furnishing Inaccurate Particulars:
The Revenue contended that both limbs of Section 271(1)(c) were applicable as the assessee had neither declared the capital gain in the original return nor in the return filed in response to the notice under Section 148. The CIT(A) found that the notice did not specify whether the penalty was for concealment or for furnishing inaccurate particulars, which created ambiguity and violated principles of natural justice.

3. Procedural Compliance of the Penalty Notice:
The CIT(A) observed that the penalty notice did not strike off the irrelevant portion, leading to procedural irregularity. The assessment order also did not specify whether the penalty was for concealment or for furnishing inaccurate particulars, which is a crucial procedural requirement. The Hon'ble jurisdictional High Court and other High Courts have consistently held that such defects in the notice vitiate the penalty proceedings.

4. Merits of the Penalty Imposed:
The CIT(A) also discussed the merits, noting that the assessee was confused about the year of incidence of capital gain due to the transaction's complexity and the unregistered nature of the agreement. However, the Tribunal decided not to delve into the merits, as the penalty was deleted based on the defective notice itself. The Revenue's argument that the assessee had full knowledge of the facts and still did not declare the income was not sufficient to override the procedural defect in the notice.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the penalty on the grounds that the notice issued under Section 271(1)(c) was defective due to the failure to strike off the irrelevant portions, thereby creating ambiguity. This procedural defect invalidated the penalty proceedings. Consequently, the appeal filed by the Revenue was dismissed.

Order:
The appeal filed by the Revenue is dismissed. The penalty imposed under Section 271(1)(c) is not maintainable due to the defective notice, and the Assessing Officer is directed to delete the penalty. The Tribunal did not comment on the merits of the case as the penalty was deleted on technical grounds.