2021 (4) TMI 1090 - AT - Income Tax

Penalty u/s 271(1)(c) - non-disclosure of income in the return - AO observed that the assessee earned remuneration from a firm which was credited to the capital but not offered for taxation - HELD THAT - A copy of the notice issued u/s 274 of the Act has been placed in the appeal folder, from which it is discernible that the AO did not strike off either of the two limbs viz., concealment of the particulars of income; and furnishing of inaccurate particulars.The penalty order came to be passed by holding that the assessee concealed his income. Recently, a full Bench of Hon‟ble Bombay High Court in Mohd. Farhan A. Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT considered this very issue. Answering the question in affirmative, the Full Bench held that a defect in notice of not striking the relevant words vitiates the penalty even though the AO had properly recorded the satisfaction for imposition of penalty in the order u/s 143(3) of the Act. Hon‟ble Bombay High Court in Pr.CIT Vs. Golden Peace Hotels and Resorts (P.) Ltd. 2021 (3) TMI 195 - SC ORDER also took similar view that where inapplicable portions were not struck off in the penalty notice, the penalty was vitiated. SLP of the Department against this judgment has been recently dismissed in Pr.CIT Vs. Golden Peace Hotels and Resorts (P.) Ltd. 2020 (2) TMI 333 - BOMBAY HIGH COURT . It is clear that where the charge is not properly set out in the notice u/s 274 viz., both the limbs stand therein without striking off of the inapplicable limb, but the penalty has been, in fact, levied for one of the two, such a penalty order gets vitiated. We find from the notice u/s 274 that the AO did not strike out one of the two limbs though the penalty was imposed with reference to the first one only, namely, concealment of particulars of income.

Summary

Issues:
- Penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 for non-disclosure of income.
- Validity of penalty order based on the notice issued by the Assessing Officer.
- Interpretation of penalty provisions regarding concealment of income and furnishing inaccurate particulars.

Analysis:

1. The case involved an appeal by the Revenue against the deletion of a penalty of ?2,26,23,440 imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2013-14. The assessee, engaged in the business of a petrol pump, had not disclosed certain income in the return, leading to additions by the Assessing Officer based on admissions by the assessee.

2. The issue revolved around the validity of the penalty order concerning the notice issued by the Assessing Officer under section 274 of the Act. The notice contained both limbs of concealment of income and furnishing inaccurate particulars, but the penalty was imposed only for concealment. The CIT(A) deleted the penalty citing precedents where failure to strike off inapplicable portions of the notice vitiated the penalty order.

3. The Tribunal analyzed the notice issued under section 274 and noted that both limbs were present without being struck off, even though the penalty was levied only for concealment of income. Referring to judgments by the Bombay High Court and the Supreme Court, the Tribunal emphasized that a defect in the notice renders the penalty order invalid, despite proper satisfaction recorded by the Assessing Officer.

4. Based on the legal position established by the judgments, the Tribunal concluded that the penalty order in the present case was flawed as the notice did not strike out one of the two limbs, making it legally unsustainable. Consequently, the Tribunal upheld the decision of the CIT(A) in deleting the penalty, leading to the dismissal of the Revenue's appeal.

5. The judgment highlighted the importance of correctly framing the charge in the notice under section 274 to ensure the validity of a penalty order. The decision reinforced the principle that failure to strike off inapplicable limbs in the notice could vitiate the penalty imposed, emphasizing the significance of procedural compliance in tax matters.

This detailed analysis of the judgment provides insights into the legal reasoning and implications of the decision regarding the imposition and deletion of penalties under the Income-tax Act, 1961.