2021 (3) TMI 479 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - Defective notice - non specification of charge -HELD THAT - In this case, AO passed the assessment order u/s 143(3) dated 21.03.2006 making certain additions to the returned income. The AO at the end of the order has mentioned I am satisfied that the assessee has concealed his income and furnished inaccurate particulars of income within the meaning of section 271(1)(c) of the Act. Accordingly, penalty proceedings u/s 274 read with section 271(1)(c) of the Act are initiated . The AO on the same day issued penalty notice dated 21.03.2006 in which the AO has mentioned the same facts (supra). It would, therefore, show that AO has mentioned both the limbs of section 271(1)(c) of the Act in the assessment order as well as in the notice issued for levy of the penalty. See M/S SSA S EMERALD MEADOWS 2015 (11) TMI 1620 - KARNATAKA HIGH COURT wherein held notice issued by the AO u/s 274 read with section 271(1)(c) of the Act to be bad in law as it did not specify which limb of section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars of income. We set aside the order of the authorities below and cancel the penalty. - Decided in favour of assessee.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 based on concealment of income or furnishing inaccurate particulars.

Analysis:
The appeal was against the order of the Ld. CIT(Appeals)-XI, New Delhi challenging the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for AY 2003-04. The AO initiated penalty proceedings based on the assessment order which mentioned concealment of income and furnishing inaccurate particulars. The penalty was confirmed by the Ld. CIT(A). The assessee contended that the penalty notice was invalid as it mentioned both limbs of section 271(1)(c) of the Act. The AO issued a penalty notice on the same day as the assessment order, reiterating the same facts. The Tribunal referred to a case where the notice issued by the AO was considered bad in law for not specifying which limb of section 271(1)(c) the penalty proceedings were initiated under. The Tribunal's decision was upheld by the Karnataka High Court and subsequently by the Supreme Court and the Delhi High Court.

The Tribunal held that the notice issued by the AO for the penalty was invalid, thereby vitiating the penalty proceedings. As the legal issue arose from the assessment order and the notice, the assessee was entitled to raise it at any stage. Consequently, the Tribunal set aside the orders of the lower authorities and canceled the penalty, allowing the appeal of the assessee.