2018 (8) TMI 1204 - AT - Income Tax

Levy of penalty - notice issued u/s 274 r.w.s. 271 - AO has not struck off the inappropriate words - Held that - Since in the instant case the Assessing Officer has not struck off the inappropriate words in the notices issued u/s 274 r.w.s. 271 therefore the notice does not specify under which limb of section 271(1)(c) the penalty proceedings had been initiated i.e. whether for concealment of income or for furnishing of inaccurate particulars of income. Therefore the penalty proceedings become bad in law. - Decided in favor of assessee.

Summary

Issues involved:
Levy of penalty under section 271(1)(c) of the I.T. Act, 1961 based on inappropriate notice issued by the Assessing Officer.

Analysis:
The appeal was filed against the order of CIT(A)-42, New Delhi concerning the assessment year 2001-02, specifically challenging the penalty of ?5,14,150 imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961. The main contention raised by the assessee was that the penalty notice did not specify the grounds for penalty imposition due to the Assessing Officer failing to strike off inappropriate words, rendering the penalty invalid. The assessee's counsel argued that various decisions, including one by the Pune Bench of the Tribunal, supported the cancellation of penalties where the notice did not specify the relevant section under which the penalty was imposed. Reference was made to the decision of the Hon’ble Karnataka High Court in a specific case, supporting the cancellation of penalties due to defective notices. The counsel emphasized that the penalty in this case should be considered bad in law due to the same reason.

The Department, however, contended that the failure to strike off inappropriate words from the notice did not invalidate the penalty proceedings. It was argued that since the assessee had concealed income by providing inaccurate particulars, the penalty should be upheld. Upon reviewing the arguments from both sides and the available records, the Accountant Member observed that the penalty was imposed due to accommodation entries of ?13,00,000 taken from a non-existent entity, which the assessee failed to substantiate during the assessment. The Accountant Member noted that the penalty was upheld by the CIT(A) based on these grounds. However, the Accountant Member agreed with the assessee's argument that the notice issued by the Assessing Officer did not specify the grounds for penalty imposition under section 271(1)(c), as the inappropriate words were not struck off. Citing a judgment of the Hon’ble Karnataka High Court, it was concluded that such defective notices rendered the penalty proceedings invalid. The Accountant Member referred to the dismissal of the Special Leave Petition (SLP) filed by the Revenue in a similar case, supporting the cancellation of penalties due to defective notices. Consequently, the Accountant Member set aside the order of the CIT(A) and directed the Assessing Officer to cancel the penalty imposed, thereby allowing the appeal filed by the assessee.

In conclusion, the appeal challenging the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 was allowed based on the defective notice issued by the Assessing Officer, which failed to specify the grounds for penalty imposition, leading to the cancellation of the penalty.