2024 (6) TMI 1353 - AT - Income Tax

Penalty levied u/s 271(1)(c) - Defective notice on non specification of clear charge - Estimation of income on bogus purchases - HELD THAT - The assessee after reading the notice was guessing as to what fault it has committed for which the AO proposed to levy penalty; and since both faults figured in the notice, as such the assessee was handicapped in defending/explaining against the proposed penalty. Therefore, since show-cause notice itself does not spell out clearly as to what fault assessee is being proceeded against for levy of penalty, the notice itself is bad in law, and consequently the penalty levied is vitiated. Same issue has come up for consideration before the Full bench of Mohd. Farhan A. Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT (LB) wherein their Lordships has held that the show cause notice issued prior to levy of penalty without specifying the fault/charge against which the assessee would vitiate the penalty itself. Also we find that in the quantum assessment estimated addition of 100% of purchases was made by AO, which was reduced to 30% of purchase by the Ld. CIT(A). In such a scenario, penalty u/s 271(1)(c) of the Act was not warranted because estimated addition has inherent subjectivity involved. Therefore, no penalty is warranted. Therefore, we direct the deletion of penalty. Refund of the excess fees paid bonafide by the assessee - assessee claims to have inadvertently remitted fees of Rs.10,000/- towards fees of this penalty appeal, whereas according to assessee, the correct fees was only Rs.500/- - HELD THAT - As noted that Section 253 of the Act, prescribes the appeal fees an assessee has to remit while filing an appeal before the Tribunal. The assessee s submission is that since the captioned appeal is penalty appeal, fees need to be deposited as per sub-clause (d) of sub-section (6) of section 253 of the Act. As per sub-clause (d) of sub-section (6) of section 253 of the Act, while filing the penalty appeal before the Tribunal, the assessee need to have remitted Rs.500/- for an appeal. In the light of the aforesaid discussion, the AO is directed to refund this amount either by way of adjusting the same against the outstanding demand, if any, or by way of grant of refund within a reasonable period. Appeal of the assessee is allowed.

Summary

Issues:
1. Challenge against penalty levied under section 271(1)(c) of the Income Tax Act, 1961.
2. Request for refund of excess appeal fees paid.

Issue 1: Challenge against penalty levied under section 271(1)(c) of the Income Tax Act, 1961:

The appellant contested the penalty imposed by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act, 1961, arguing that the show-cause notice issued by the AO was defective as it did not specify the grounds for the penalty clearly. The appellant highlighted that the notice was ambiguous, making it difficult for them to defend against the proposed penalty. The appellant referred to a Full Bench decision of the High Court which supported the view that a notice lacking specificity regarding the alleged fault would render the penalty invalid. Moreover, it was noted that in the quantum assessment, where an estimated addition was made by the AO and subsequently reduced by the Commissioner of Income Tax (Appeals), the penalty under section 271(1)(c) was deemed unwarranted due to the inherent subjectivity involved in the estimation. Consequently, the Tribunal directed the deletion of the penalty.

Issue 2: Request for refund of excess appeal fees paid:

The appellant claimed to have inadvertently remitted an excessive amount as appeal fees while filing the penalty appeal. The correct fee, according to the appellant, was significantly lower than what was paid. Citing a precedent from the Tribunal, the appellant sought a refund of the excess fees paid in good faith. The Tribunal acknowledged the error in fee remittance and referred to the relevant section of the Income Tax Act which specifies the fees for filing a penalty appeal. As per the provisions, the correct fee for the penalty appeal was indeed lower than what was paid by the appellant. Consequently, the Tribunal directed the Assessing Officer to refund the excess amount paid by the appellant, either by adjusting it against any outstanding demand or by issuing a refund within a reasonable timeframe.

In conclusion, the Appellate Tribunal ITAT Mumbai allowed the appeal of the assessee, directing the deletion of the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961, and ordering the refund of the excess appeal fees paid by the appellant.