2021 (6) TMI 985 - AT - Income Tax

Penalty u/s 271(1)(c) - defect in the show causer notice issued under section 274 - non specification of charge - excess claim of deduction u/s 36(1)(viia) in respect of provision for bad and doubtful debt relating to rural branches as AO observed that certain branches in respect of which the assessee had claimed the deduction, do not qualify as rural branches - HELD THAT - AO has issued a generic show cause notice in a printed form without mentioning the specific charge by striking off the inapplicable words. Thus, the show cause notice issued under section 274 r.w.s section 271(1)(c) is a vague and omnibus notice revealing complete non-application of mind by the assessing officer. Thus, as relying on SMT. KAUSHALYA AND OTHERS 1995 (1) TMI 25 - BOMBAY HIGH COURT penalty order passed under section 271(1)(c) of the Act, has to be declared as invalid. Thus respectfully following the Full Bench decision of Mohammed Farhan A Shaikh vs DCIT 2021 (3) TMI 608 - BOMBAY HIGH COURT we hold the impugned order passed under section 271(1)(c) of the Act as invalid and without jurisdiction due to defect in the show cause notice issued under section 274 r.w.s. 271(1)(c) of the Act. Thus, the penalty order passed in pursuance thereto, being vitiated, has to be quashed. Accordingly, we uphold the decision of learned Commissioner (Appeals) in deleting the penalty imposed under section 271(1)(c) - Decided in favour of assessee.

Issues Involved:
1. Validity of the penalty order under section 271(1)(c) of the Income Tax Act, 1961.
2. Defect in the show cause notice issued under section 274 r.w.s. 271(1)(c).
3. Condonation of delay in filing the cross objection by the assessee.
4. Merits of the penalty imposed under section 271(1)(c).

Detailed Analysis:

1. Validity of the Penalty Order under Section 271(1)(c):
The main issue revolves around the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961, which was deleted by the Commissioner of Income Tax (Appeals) for the assessment year 2010-11. The penalty was initially imposed by the Assessing Officer (AO) for allegedly furnishing inaccurate particulars of income by the assessee, a co-operative bank, in claiming a deduction under section 36(1)(viia).

2. Defect in the Show Cause Notice:
The assessee challenged the validity of the penalty order on the grounds of a defective show cause notice issued under section 274 r.w.s. 271(1)(c) of the Act. The AO had not specifically indicated which limb of section 271(1)(c) was applicable, as the notice did not strike off the inapplicable words. This was supported by the Full Bench decision of the Hon’ble jurisdictional High Court in *Mohammed Farhan A Shaikh vs DCIT* and the Division Bench decision in *Ventura Textiles Ltd vs CIT*. The Tribunal noted that the AO’s failure to specify the exact charge in the notice rendered the penalty order invalid, as it led to ambiguity and vagueness.

3. Condonation of Delay:
The assessee filed an application for condonation of delay of 59 days in filing the cross objection, which was accompanied by an affidavit. The delay was attributed to the officials being preoccupied with statutory and other audits. The Tribunal found the reasons to be bona fide and not deliberate, thus condoning the delay and admitting the cross objection for adjudication on merit.

4. Merits of the Penalty:
The AO observed that the assessee had claimed deductions for branches that did not qualify as rural branches and had created a provision of ?350 lakhs but claimed a deduction of ?36,74,91,638/-. The AO disallowed the excess deduction and imposed a penalty for furnishing inaccurate particulars of income. However, the Tribunal noted that the penalty order was based on a defective notice. The Tribunal also referred to its own decisions in the assessee’s cases for the assessment years 2008-09 and 2009-10, where penalties were deleted due to similar defects in the show cause notices.

Conclusion:
The Tribunal upheld the decision of the Commissioner (Appeals) in deleting the penalty imposed under section 271(1)(c) of the Act due to the defective show cause notice, making the penalty order invalid and without jurisdiction. Consequently, the cross objection filed by the assessee was allowed, and the revenue’s appeal was dismissed. The Tribunal did not delve into the merits of the penalty due to the decision on the legal issue. The order was pronounced on 28/06/2021.

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