2024 (12) TMI 1426 - AT - Income Tax

Penalty u/s. 271(1)(c) - disallowance of assessee s claim of deduction u/s. 10B - as alleged notice is defective as the AO has not struck off irrelevant clause of section 271(1)(c ) - HELD THAT - While indicating penalty the AO intended to invoke only Explanation 1. The ambiguity in mentioning charge at the time initiation of penalty and while issuing notice u/s. 274 r.w.s 271(1) of the Act is writ large. It is a well settled law that any ambiguity in notice for levy of penalty would vitiate penalty proceedings. Hence, penalty u/s. 271(1)(c) of the Act is liable to be deleted on account of defective notice itself. Even on merits, assessee has a case. The assessee had claimed deduction u/s. 10B - During assessment proceedings the assessee surrender the claim. In computation of income and in Tax Audit Report filed along with return of income, the assessee had disclosed entire particulars. Merely, for the reason that the assessee has claimed deduction which according to the AO was not admissible to the assessee would not make a case for levy of penalty under section 271(1)(c). As decided in Reliance Petro Products P Ltd. 2010 (3) TMI 80 - SUPREME COURT mere making of a claim which is not sustainable in law by itself will not amount to furnishing inaccurate particulars regarding the income of assessee. Such claim made in the return cannot amount to inaccurate particulars. Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in the judgment are:

Whether the delay in filing the appeal by the assessee should be condoned.
Whether the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961, is sustainable given the alleged ambiguity in the notice issued by the Assessing Officer (AO).
Whether the assessee's claim for deduction under Section 10B of the Act was made in good faith and whether the penalty for concealment of income or furnishing inaccurate particulars is justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Delay in Filing the Appeal

Relevant Legal Framework and Precedents: The tribunal considered the application for condonation of delay in filing the appeal, which was delayed by 12 days.
Court's Interpretation and Reasoning: The tribunal noted that the Revenue did not object to the delay and found the reasons for the delay to be bona fide.
Conclusion: The delay was condoned, and the appeal was admitted for adjudication on merits.

Issue 2: Defect in the Notice under Section 271(1)(c)

Relevant Legal Framework and Precedents: Section 271(1)(c) of the Income Tax Act deals with penalties for concealment of income or furnishing inaccurate particulars. The notice must clearly specify the charge.
Court's Interpretation and Reasoning: The tribunal observed that the notice was ambiguous as it mentioned both limbs of Section 271(1)(c) without specifying which was applicable, thus making it defective.
Key Evidence and Findings: The notice used the conjunction 'or' and included all explanations to Section 271(1)(c), leading to ambiguity.
Application of Law to Facts: The tribunal relied on precedents such as CIT vs. SSA's Emerald Meadows and CIT vs. Manjunath Cotton and Ginning Factory, which held that ambiguity in penalty notices vitiates the proceedings.
Conclusion: The penalty was deemed liable to be deleted due to the defective notice.

Issue 3: Merits of the Penalty under Section 271(1)(c)

Relevant Legal Framework and Precedents: The penalty under Section 271(1)(c) requires concealment of income or furnishing inaccurate particulars. Reliance Petro Products P Ltd. case is relevant.
Court's Interpretation and Reasoning: The tribunal found that the assessee disclosed all particulars and the claim for deduction under Section 10B was made in good faith based on a possible interpretation of the law.
Key Evidence and Findings: The assessee had disclosed the computation of income and details in the Tax Audit Report.
Application of Law to Facts: The tribunal noted that merely making a claim that is not accepted does not amount to furnishing inaccurate particulars.
Conclusion: The penalty was unsustainable on merits as well.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "It is a well settled law that any ambiguity in notice for levy of penalty would vitiate penalty proceedings."
Core Principles Established: Ambiguity in penalty notices under Section 271(1)(c) renders the penalty proceedings invalid. A bona fide claim, even if not accepted, does not justify a penalty for inaccurate particulars.
Final Determinations on Each Issue: The delay in filing the appeal was condoned. The penalty under Section 271(1)(c) was deleted due to the defective notice and lack of merit in the penalty claim.

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