2024 (7) TMI 1423 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - Defective notice u/s 274 - non striking off irrelevant clause - HELD THAT - Even though, the AO had clearly mentioned in the assessment order that the assessee had furnished inaccurate particulars of income but at the time of issuing he did not strike off the irrelevant clause. As such, the notice issued by the Ld. AO was vague. There are various decisions on this issue on the decision of Mohd. Farhan A. Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT (LB) mere defect in the notice by not striking off the irrelevant matter vitiate the penalty proceedings. A penalty proceeding is a corollary, nevertheless, it must stand on its own. These proceedings culminate under a different statutory scheme that remains distinct from the assessment proceedings. Therefore, the assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness. Thus we direct the deletion of the penalty levied in this case. Decided in favour of assessee.

Summary

Issues:
Levy of penalty u/s 271(1)(c) of the Income Tax Act, 1961 for AY 2014-15 based on inaccurate particulars of income furnished by the assessee.

Analysis:
The appeal was filed challenging the order passed by the Ld CIT(A) related to the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. The assessee contended that the Assessing Officer (AO) issued the penalty notice in a mechanical manner without recording any satisfaction, rendering it unsustainable in law. The grounds raised included the lack of proper recording of satisfaction by the AO and the erroneous levy of the penalty amount. The brief facts revealed that the company declared nil income but faced scrutiny resulting in disallowance of expenses, leading to the penalty imposition. The CIT(A) upheld the penalty citing inaccurate particulars furnished by the assessee.

The argument presented before the tribunal highlighted the lack of application of mind by the AO while issuing the penalty notice. It was pointed out that the AO failed to strike off the irrelevant clause in the notice, leading to vagueness in the penalty proceedings. The tribunal considered previous decisions on similar issues and referred to the case of Mohd. Farhan A. Shaikh Vs. DCIT, emphasizing the need for clarity in penalty proceedings. The tribunal noted that the assessment order mentioned inaccurate particulars of income, but the notice lacked specificity, aligning with the principles outlined in the aforementioned case. Consequently, the tribunal directed the deletion of the penalty levied based on the jurisdictional High Court's decision, ruling in favor of the assessee.

In conclusion, the tribunal allowed the appeal filed by the assessee, ordering the deletion of the penalty levied under section 271(1)(c) of the Income Tax Act, 1961. The decision was based on the principle of strict construction of penal provisions and the requirement for clarity in penalty proceedings, as highlighted in relevant case law.