2019 (5) TMI 28 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - disallowance of provision for bad debt - A.O. noted that such provision is not allowable unless it is ascertained liability - A.O. accordingly made addition of the amount and assessed the net loss - HELD THAT - We are of the view that penalty is not leviable in the matter. The A.O. issued show cause notice dated 27th December, 2010 before levy of the penalty against the assessee. A.O. in its show cause notice failed to specify in which limb of Section 271(1)(c) the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing inaccurate particulars of income, as rightly pointed-out by the Assessee. The entire penalty proceedings are, therefore, vitiated and no penalty is leviable. See M/S SSA'S EMERALD MEADOWS 2016 (8) TMI 1145 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues:
Challenge to levy of penalty under section 271(1)(c) of the I.T. Act, 1961 for the A.Y. 2008-2009.

Analysis:

1. Factual Background:
- The Assessee filed a return of income declaring a loss of ?5.75 crores, with a provision for bad debt of ?1,01,81,411 debited to the P & L account.
- The Assessing Officer (A.O.) disallowed the provision as it was not an ascertained liability, resulting in a net loss of ?4.74 crores and the subsequent levy of penalty under section 271(1)(c) of the I.T. Act, 1961.
- The Ld. CIT(A) upheld the penalty, leading to the Assessee's appeal.

2. Assessee's Arguments:
- The Assessee contended that the A.O. did not specify the grounds for initiating penalty proceedings under section 271(1)(c) in the show cause notice, rendering the penalty illegal.
- Citing various precedents, including a judgment of the Hon'ble Supreme Court, the Assessee argued that the lack of specificity in the notice vitiates the penalty proceedings.

3. Revenue's Response:
- The Revenue relied on the lower authorities' orders without providing additional arguments.

4. Judgment:
- The Tribunal held that the penalty was not sustainable due to the A.O.'s failure to specify the grounds for penalty initiation in the show cause notice, as required by law.
- Citing a decision of the Hon'ble Karnataka High Court and the subsequent confirmation by the Hon'ble Supreme Court, the Tribunal concluded that the penalty proceedings were flawed.
- Consequently, the Tribunal set aside the lower authorities' orders and canceled the penalty, allowing the Assessee's appeal.

5. Conclusion:
- The Tribunal's decision emphasizes the importance of complying with procedural requirements in penalty proceedings under section 271(1)(c) of the I.T. Act, 1961.
- By highlighting the necessity of clearly specifying the grounds for penalty initiation, the judgment provides clarity on the legal standards governing such proceedings and safeguards against arbitrary penal actions.

This detailed analysis of the judgment showcases the procedural and substantive aspects considered by the Tribunal in determining the validity of the penalty levied under section 271(1)(c) of the I.T. Act, 1961 for the relevant assessment year.