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2021 (7) TMI 441 - AT - Income TaxPenalty u/s 271(1)(c) - Defective notice u/s 274 - AO failed to strike off the irrelevant default viz concealment of particulars of income or furnishing of inaccurate particulars of income - HELD THAT - On a bare perusal of the SCN it can safely be gathered that the Assessing Officer himself was not aware as to for what default the assessee firm was being put to notice and therein called upon to explain as to why penalty may not be imposed on it. Be that as it may, it remains as a matter of fact borne from the record that the Assessing Officer had blatantly failed to validly put the assessee to notice as regards the default for which the penalty was sought to be imposed on it. In our considered view, as both of the two defaults envisaged in Sec. 271(1)(c) i.e concealment of income and furnishing of inaccurate particulars of income are separate and distinct defaults which operate in their respective independent and exclusive fields, therefore, it was obligatory on the part of the A.O to have clearly put the assessee to notice as regards the default for which it was being called upon to explain as to why penalty under Sec. 271(1)(c) may not be imposed on it. - Decided in favour of assessee.
Issues Involved:
1. Jurisdiction of the Assessing Officer (A.O) under Section 271(1)(c) of the Income Tax Act, 1961. 2. Validity of the "Show Cause" notice issued under Section 274 read with Section 271(1)(c). 3. Imposition of penalty for disallowance of property expenses. Detailed Analysis: 1. Jurisdiction of the Assessing Officer (A.O) under Section 271(1)(c) of the Income Tax Act, 1961: The primary issue raised by the assessee was the improper assumption of jurisdiction by the A.O under Section 271(1)(c) of the Income Tax Act, 1961. The assessee argued that the A.O imposed the penalty without clearly specifying the default for which the penalty was being imposed. The A.O issued a "Show Cause" notice under Section 274 read with Section 271(1)(c) but failed to strike off the irrelevant default, i.e., "concealment of income" or "furnishing of inaccurate particulars of income." This failure led to the assessee being unaware of the specific charge against them, thereby depriving them of the opportunity to defend themselves adequately. 2. Validity of the "Show Cause" notice issued under Section 274 read with Section 271(1)(c): The Tribunal examined the validity of the "Show Cause" notice issued by the A.O. It was observed that the A.O did not strike off the irrelevant default in the notice, indicating a lack of application of mind. The Tribunal emphasized that the two defaults, "concealment of income" and "furnishing of inaccurate particulars of income," are distinct and operate independently. Therefore, it was obligatory for the A.O to clearly specify the default for which the assessee was being called upon to explain. The Tribunal referred to various judicial pronouncements, including those by the Hon'ble Supreme Court and High Courts, which held that non-specification of the charge in the notice reflects non-application of mind and violates the principles of natural justice. Consequently, the "Show Cause" notice was deemed invalid, rendering the penalty order void ab initio. 3. Imposition of penalty for disallowance of property expenses: On the merits, the assessee argued that the disallowance of property expenses amounting to ?10,86,430/- was due to an inadvertent mistake while compiling the return of income. The assessee contended that the amount was wrongly booked under "administrative expenses" instead of "property expenses." The Tribunal did not delve into the merits of this argument, as the penalty was quashed on jurisdictional grounds. However, it was noted that genuine mistakes should not attract penalty under Section 271(1)(c), as supported by the judgment of the Hon'ble Supreme Court in Price Water House Coopers Pvt. Ltd. Vs. CIT, Kolkata-1. Conclusion: The Tribunal concluded that the A.O failed to discharge the statutory obligation of clearly specifying the charge in the "Show Cause" notice, thereby violating Section 274(1) of the Act. As a result, the penalty of ?3,35,707/- imposed under Section 271(1)(c) was quashed. The appeal filed by the assessee was allowed, and the Tribunal refrained from adjudicating the merits of the case, leaving them open for future consideration. Order Pronouncement: The order was pronounced in the open court on 16.06.2021.
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