2020 (7) TMI 124 - AT - Income Tax

Penalty u/s 271 (1)(c) - defective notice - as per AO assessee has furnished inaccurate particulars by claiming Provisions of Fines Penalties in its ITR and concealed the income to that extent - HELD THAT - AO has not made it clear under which limb of the provisions of Section 271(1)(c) of the Act, the penalty is being levied. There is glaring discrepancy between initiation of the penalty and levy of penalty. This is a jurisdictional issue arising out of the penalty order before us. DR heavily relied on the judgment of Sundaram Finance Ltd. Vs CIT 2018 (5) TMI 259 - MADRAS HIGH COURT and argued that the Hon ble High Court held that where notice did not show the nature of default, it was a question of fact. The assessee has understood purport and import of the notice, hence, no prejudice was caused to the assessee. As decided in M/S. SAHARA INDIA LIFE INSURANCE COMPANY, LTD. 2019 (8) TMI 409 - DELHI HIGH COURT notice issued by the AO would be bad in law if it did not specify which limb of Section 271(1)(c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. Also see M/S SSA'S EMERALD MEADOWS 2016 (8) TMI 1145 - SC ORDER - We hereby hold that the penalty levied by the Assessing Officer cannot be held to be legally valid in the eyes of law. - Decided in favour of assessee.

Summary

Issues:
1. Granting relief to the assessee and deleting penalty u/s 271(1)(c) for inaccurate particulars and concealed income.
2. Treatment of contingent liability as deductible and suppression of returned income.
3. Disallowance of provisions, treatment of expenditures, and initiation of penalty proceedings.
4. Jurisdictional issue in penalty levy under Section 271(1)(c).
5. Interpretation of penalty notice and nature of default.
6. Applicability of judgments in Sundaram Finance Ltd. and Sahara India Life Insurance Company Ltd.
7. Legal validity of penalty levied by the Assessing Officer.

Analysis:
1. The appeal was filed by the revenue against the orders of the ld. CIT(A)-2, Gurgaon, wherein relief was granted to the assessee by deleting the penalty u/s 271(1)(c) of the Income Tax Act, 1961 amounting to ?1,10,09,192. The grounds raised included the assessee furnishing inaccurate particulars by claiming 'Provisions of Fines & Penalties' and treating a contingent liability as deductible, leading to suppression of income.

2. The assessment involved disallowance of provisions, treatment of expenditures, and initiation of penalty proceedings by the Assessing Officer. The AO observed that the assessee concealed/furnished inaccurate particulars of income for the AY 2010-11, leading to penalty initiation. However, a jurisdictional issue arose as the nature of the penalty levy was not clearly specified.

3. The jurisdictional issue was crucial as per the judgment in Sundaram Finance Ltd. v. CIT, wherein the High Court held that specifying the nature of default in the penalty notice was essential. The judgment of Sahara India Life Insurance Company Ltd. emphasized the importance of mentioning the limb of Section 271(1)(c) under which penalty proceedings were initiated.

4. Relying on legal precedents, including the judgment in SSA's Emerald Meadows, the Tribunal concluded that the penalty levied by the Assessing Officer was not legally valid due to the lack of clarity in specifying the nature of default. The Tribunal dismissed the revenue's appeal, holding the penalty to be legally invalid.

5. In conclusion, the judgment highlighted the significance of correctly specifying the nature of default in penalty notices under Section 271(1)(c) to ensure the validity of penalty levies. The decision was based on legal principles and interpretations from relevant judgments, ultimately leading to the dismissal of the revenue's appeal.