2024 (10) TMI 1080 - AT - Income Tax

Validity of notice issued u/s 274 r/w section 271(1)(c) - defective notice - AO did not mention under which the limb penalty under section 271(1)(c) of the Act has been levied - HELD THAT - From the perusal of the notice issued u/s 274 r/w section 271(1)(c) of the Act, we find that the AO did not strike off any of the twin charges i.e., concealment of particulars of income or furnishing of inaccurate particulars of income. We find that the Larger Bench of the Hon'ble Jurisdictional High Court in Mohd. Farhan A. Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT (LB) held that the defect in notice by not striking off the irrelevant matter would vitiate the penalty proceedings. Appeal by the assessee is allowed.

Summary

Issues:
Validity of notice issued under section 274 r/w section 271(1)(c) of the Act
Levy of penalty under section 271(1)(c) based on peak credit theory
Specification of head under which penalty was levied

Analysis:
The appeal challenges an order passed under section 250 of the Income Tax Act, 1961, arising from a penalty order under section 271(1)(c) for the assessment year 2007-08. The assessee raised grounds related to fair opportunity of being heard, invalid notice issued under section 274 r/w 271(1)(c), and the levy of penalty based on peak credit theory. The issue in ground no. 2 pertains to the validity of the notice issued under section 274 r/w section 271(1)(c) of the Act.

The assessee, engaged in diamond trading, faced scrutiny due to accommodation entries obtained from non-genuine concerns. The Assessing Officer made an addition under section 69C based on peak credit theory. Subsequently, a penalty was levied under section 271(1)(c), which the CIT(A) upheld. The assessee contended that the penalty was levied without specifying the relevant charge.

During the hearing, the AR argued that the penalty notice did not specify the charge for which the penalty was imposed. The DR relied on previous decisions but failed to address the specific issue raised by the assessee regarding the defect in the penalty notice. The Tribunal observed that the defect in the notice would vitiate the penalty proceedings, citing relevant case law.

The Tribunal noted that the assessee had raised the issue of the defect in the penalty notice during the appellate proceedings before the CIT(A). Despite the CIT(A) dismissing the appeal without addressing this issue, the Tribunal found merit in the assessee's submission and quashed the penalty order based on the binding precedent set by the jurisdictional High Court.

The Tribunal held that the penalty notice issued under section 274 r/w 271(1)(c) was invalid and consequently quashed the penalty order for the assessment year in question. As a result, the appeal by the assessee was allowed, rendering other grounds raised by the assessee academic and left open for consideration.

In conclusion, the Tribunal's decision focused on the specific issue of the validity of the penalty notice, ultimately leading to the quashing of the penalty order under section 271(1)(c) for the assessment year 2007-08.