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2024 (8) TMI 686 - AT - Income TaxPenalty u/s 271(1)(c) - rejecting the claim for set off of brought forward business loss against the income - allegation of defective notice u/s 274 - HELD THAT - There was no failure to disclose material facts, as the cancellation of the banking license by the RBI was disclosed in the original return. The banking business was under liquidation, the cooperative status was intact, and the bank continued to earn interest on deposits placed out of funds realised form the borrowers and claimed the set-off of brought forward losses. We also note that the quantum appeal before the Tribunal against the order of the CIT(A) was dismissed for non-prosecution and the assessee had no opportunity to argue on the merits. Penalty is based on a technical disallowance of set-off claims, not on concealment or inaccurate particulars of income. We also note that the AO failed to specify whether the penalty was for concealment or inaccurate particulars in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act. It is held in many judicial precedents that the penalty notice must clearly specify whether it is for concealment of income or furnishing inaccurate particulars. A vague notice vitiates the penalty proceedings. Decided in favour of assessee.
Issues:
1. Disallowance of set off of brought forward business loss against income. 2. Imposition of penalty under section 271(1)(c) for inaccurate particulars and concealment of income. 3. Appeal against penalty order before the Ld.CIT(A). 4. Revised grounds of appeal submitted by the assessee. 5. Arguments presented by both the Ld.AR and Ld.DR. 6. Justification of penalty under section 271(1)(c) and its deletion. Analysis: 1. Disallowance of set off of brought forward business loss against income: The case involved a Co-operative Bank in liquidation facing restrictions imposed by the RBI. The Assessing Officer (AO) disallowed the set off of brought forward business loss of AY 2003-04 against the income for AY 2010-11. The AO initiated penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars and concealment of income. 2. Imposition of penalty under section 271(1)(c): The AO issued a show-cause notice to the assessee for concealment of income. The assessee argued that all material facts were disclosed in the original return and that the disallowance was a technical disallowance, not concealment. The AO levied a 100% penalty of tax sought to be evaded, leading to an appeal before the Ld.CIT(A). 3. Appeal against penalty order before the Ld.CIT(A): The Ld.CIT(A) dismissed the appeal after confirming the penalty, stating that the assessee wrongly claimed set off of unabsorbed losses without filing returns for subsequent years. The assessee challenged this decision before the Tribunal. 4. Revised grounds of appeal submitted by the assessee: The assessee submitted revised grounds of appeal, arguing that no penalty should be levied when all necessary facts were disclosed, and the notice under section 271(1)(c) was not in accordance with the law. The assessee contended that the interest income was not taxable due to an overriding title in favor of DICGC. 5. Arguments presented by both the Ld.AR and Ld.DR: The Ld.AR argued that the interest income was not taxable as it was diverted to DICGC due to overriding title. In contrast, the Ld.DR contended that the disallowance of set off of losses led to concealment of income. 6. Justification of penalty under section 271(1)(c) and its deletion: The Tribunal observed that there was no failure to disclose material facts and that the penalty was based on a technical disallowance. The penalty notice did not specify whether it was for concealment or inaccurate particulars. Considering judicial precedents, the Tribunal concluded that the penalty was not justified. The penalty of Rs. 36,58,434/- was deleted, and the appeal of the assessee was allowed. This detailed analysis covers the disallowance of set off, imposition of penalty, appeal process, revised grounds of appeal, arguments by both parties, and the final decision regarding the penalty under section 271(1)(c).
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