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2025 (2) TMI 42 - AT - Income TaxPenalty proceedings u/s. 271(1)(c) - Defective notice - Non specification of clear charge - AO held that the assessee had offered incorrect amount of short term capital gains on the transactions in securities in the return of income and added a sum as short term capital gains which were not offered to tax by the assessee - HELD THAT - From the contents of the notice initiating penalty proceedings as well as order levying penalty u/s. 271(1)(c) of the Act on assessee we observe that the AO has not given clear cut classification as to whether the penalty has been levied for concealment of income or furnishing inaccurate particulars of income . It is a well settled principle that the AO has to give an absolute and categorical findings while levying the penalty u/s. 271(1)(c) of the Act whether the same is being levied for concealment of income or furnishing inaccurate particulars of income . Thus in the absence of specific findings whether the penalty has been levied for concealment of income or furnishing inaccurate particulars of income the penalty order is liable to be set-aside. Appeal of the assessee is allowed.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this appeal were:
ISSUE-WISE DETAILED ANALYSIS 1. Justification of Penalty under Section 271(1)(c) The relevant legal framework involves section 271(1)(c) of the Income Tax Act, which deals with penalties for concealment of income or furnishing inaccurate particulars of income. The Tribunal considered the precedent set by the Supreme Court in MAKDATA Pvt. Ltd. vs. CIT-II, which emphasizes that the burden is on the assessee to provide cogent evidence to counter the presumption of concealment when discrepancies are found between reported and assessed income. The Court noted that the assessee did not appeal the quantum additions due to the small tax amount involved and chose to pay the taxes to avoid further litigation. However, the assessee contested the penalty, arguing that the losses from "futures and options" should have been set off against the "short term capital gains," which the Assessing Officer (AO) ignored. The Tribunal concluded that the penalty was not justified as the assessee was eligible for the set-off under section 71(2), and the AO's failure to consider this during penalty proceedings was a critical oversight. 2. Eligibility for Set-Off under Section 71(2) Section 71(2) allows for the set-off of losses from one head of income against capital gains. The Tribunal found that the losses from "futures and options" trading were indeed eligible for set-off against the "short term capital gains" from securities transactions. The Tribunal noted that the AO did not address this argument during the penalty proceedings, which was a significant factor in deciding against the penalty. The Tribunal applied the law to the facts by recognizing the assessee's eligibility for the set-off and concluded that the AO's oversight in this regard invalidated the penalty. 3. Validity of Penalty Proceedings The Tribunal examined the clarity of the penalty notice, which failed to specify whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income." Citing precedents such as Principal Commissioner of Income-tax vs. Shyam Sunder Jindal and others, the Tribunal emphasized that the AO must clearly indicate the specific limb under which the penalty is levied. The Tribunal found that the lack of specificity in the penalty notice rendered the proceedings invalid. The absence of clear findings on whether the penalty was for concealment or inaccurate particulars led the Tribunal to set aside the penalty order. SIGNIFICANT HOLDINGS The Tribunal held that:
The appeal of the assessee was allowed, and the penalty order was set aside, as pronounced in open court on 30.01.2025.
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