2019 (5) TMI 623 - AT - Income Tax

Penalty u/s 274 r.w.s. 271(1) - defective notice - non-striking off of the inappropriate words - HELD THAT - From the notice dated 25/3/2014 produced by the AR during the hearing, it can be seen that the Assessing Officer was not sure under which limb of provisions of Section 271 of the Income Tax Act, 1961, the assessee is liable for penalty. The issue is squarely covered by the decision of the Hon ble Supreme Court in case of M/s SSA Emerald Meadow. 2016 (8) TMI 1145 - SC ORDER Inappropriate words in the penalty notice has not been struck off and the notice does not specify as to under which limb of the provisions, the penalty u/s 271(1)(c) has been initiated, therefore, we are of the considered opinion that the penalty levied u/s 271(1)(c) is not sustainable and has to be deleted. Although the Ld. DR has relied on various decisions to the proposition that mere non-striking off of the inappropriate words will not invalidate the penalty proceedings, however, all these decisions are of non-jurisdictional High Court decisions. We, therefore, set-aside the order of the CIT(A) and direct the Assessing Officer to cancel the penalty so levied. - Decided in favour of assessee.

Summary

Issues:
Penalty under Section 271(1)(c) of the Income Tax Act, 1961 - Whether penalty for concealment of income or furnishing inaccurate particulars of income - Validity of penalty order based on estimates in quantum proceedings - Disclosure of facts and project completion method - Effect of quantum addition on tax liability - Non-speaking penalty order - Non-filing of appeal against quantum addition and automatic levy of penalty - Notice for penalty not specifying the limb of provisions under which penalty is imposed.

Analysis:
1. The appeal was filed against the penalty order passed by the CIT(A)-IX, New Delhi for Assessment Year 2011-12. The grounds of appeal raised various issues regarding the legality and basis of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.

2. The assessee had declared a loss in the return of income for the relevant assessment year, which was not allowed to be carried forward due to late filing. The Assessing Officer made additions, including estimation of profit from advances received, reducing the return loss. Subsequently, penalty proceedings were initiated under Section 271(1)(c) based on these additions.

3. The CIT(A) upheld the penalty order, leading to the appeal before the ITAT. The arguments presented highlighted the lack of specificity in the penalty notice regarding the limb of provisions under which the penalty was imposed, citing relevant case law to support the contention that such notices are invalid.

4. The ITAT, after considering the submissions and precedents, found merit in the argument that the penalty notice was deficient in specifying the relevant provisions. Relying on the decision of the Hon'ble Supreme Court and the principle of favorability to the assessee in case of conflicting views, the ITAT set aside the CIT(A)'s order and directed the cancellation of the penalty imposed under Section 271(1)(c).

5. The ITAT's decision was based on the principle that the penalty notice must clearly indicate the specific limb of Section 271(1)(c) under which the penalty is imposed. The lack of such specificity renders the penalty unsustainable, leading to the allowance of the assessee's appeal and the cancellation of the penalty order.

6. The judgment emphasized the importance of procedural compliance in penalty proceedings and the need for clear and specific communication in penalty notices to ensure the validity and sustainability of penalties imposed under the Income Tax Act, 1961.