2024 (7) TMI 964 - AT - Income Tax

Penalty u/s 271(1)(c) - addition was made on the basis of the estimation of manpower related to Associated Enterprises and non-related Associated Enterprises - HELD THAT - Addition was made on the estimation which is not attracted the penalty u/s 271(1)(c). AR only pressed the ground no. 1 and 2 related to legal issue for issuance of notice u/s 271(1)(c) r.w.s. 274 which is defective for non-mentioning of the reasons of penalty. The assessee made an objection during the penalty proceedings and also in the appellate proceedings. The grounds were taken before the learned CIT (A). The issue is squarely covered by the decision of Hon ble Jurisdictional HC in case of MR. MOHD. FARHAN A. SHAIKH 2021 (3) TMI 608 - BOMBAY HIGH COURT (LB) AR laid down that in the absence of such specific notice the notice would be invalid. As held in various judicial pronouncements including the decision of CIT V/s SAS s Emerald Meadows 2015 (11) TMI 1620 - KARNATAKA HIGH COURT against which Special Leave Petition (SLP) filed by the department stood dismissed by Hon ble Supreme Court 2016 (8) TMI 1145 - SC ORDER . The notice u/s 274/271(1)(c) of the Act is not carrying the specific limb. Therefore this is a case where both the parts of the offences i.e. concealment of income as well as furnishing of inaccurate particulars of income were involved. We allow the appeal of the assessee.

Summary

Issues:
1. Maintainability of penalty order under Section 271(1)(c) of the Income Tax Act, 1961.
2. Defective issuance of notice under Section 271(1)(c) read with section 274 of the Act for not specifying the reasons for penalty.

Analysis:

Issue 1: Maintainability of penalty order under Section 271(1)(c) of the Income Tax Act, 1961:
The appeal was filed against the order of the National Faceless Appeal Centre, Delhi, under Section 250 of the Income-tax Act, 1961, for A.Y. 2012-13. The penalty of Rs. 8,811,560 was levied under Section 271(1)(c) of the Act, based on a Transfer Pricing adjustment made by the Transfer Pricing Officer. The penalty was challenged on grounds that the penalty proceedings were erroneous, as the AO did not establish concealment or furnishing of inaccurate particulars of income. The appellant argued that proper documentation was maintained as per Indian transfer pricing regulations and that the additions made were due to a difference of opinion. The Hon'ble CIT(A) upheld the penalty order, leading to the appeal before the Appellate Tribunal.

Issue 2: Defective issuance of notice under Section 271(1)(c) read with section 274 of the Act for not specifying the reasons for penalty:
The learned Authorized Representative contended that the notice initiating the penalty and the penalty order did not specify whether the penalty was for 'concealment' or 'inaccurate particulars of income.' The absence of specific reasons for the penalty was raised as a legal issue before the Assessing Officer, during the penalty proceedings, and in the appellate proceedings. The appellant relied on a decision of the Hon'ble Jurisdictional High Court to support the argument that the notice was defective. The Appellate Tribunal, after considering the submissions and legal precedents, concluded that the penalty was not sustainable on legal grounds due to the defective notice. Consequently, the penalty of Rs. 8,811,560 was quashed, and the appeal of the assessee was allowed.

In conclusion, the Appellate Tribunal set aside the penalty order based on the legal issue of the defective notice, highlighting the importance of specifying reasons for penalties under Section 271(1)(c) of the Income Tax Act, 1961. The decision was made following established judicial precedents, emphasizing the necessity of adherence to legal procedures in penalty proceedings.