2021 (8) TMI 565 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice u/s 274 - HELD THAT - As in the cases of CIT vs. SSA s Emerald Meadows and Pr. CIT vs. Sahara India Life Insurance Company Ltd. 2016 (8) TMI 1145 - SC ORDER , we are of the considered view that when the notice issued by the AO is bad in law being vague and ambiguous having not specified under which limb of section 271(1)(c) of the Act the same has been issued, the penalty proceedings initiated u/s 271(1)(c) are not sustainable. Hon ble Apex Court in case of Reliance Petro Products Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT held that, by no stretch of imagination can making an inaccurate claim tantamount to furnishing of inaccurate particulars when none of the information given in the return is found to be incorrect or inaccurate. In the instant case, it was a mere case of difference of opinion taken by the AO. We are of the considered view that there is no perversity or infirmity in the impugned order passed by the ld. CIT (A), hence appeal filed by the Revenue is dismissed.

Summary

Issues:
1. Validity of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Notice specification under which limb of section 271(1)(c) penalty proceedings were initiated.
3. Treatment of R&D expenditure as capital in nature by the Assessing Officer.
4. Deletion of penalty by the ld. CIT (A) based on various legal grounds.

Issue 1: Validity of Penalty under Section 271(1)(c):
The Appellant, the Addl. CIT, sought to set aside the penalty order passed under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2014-15. The penalty was imposed for furnishing inaccurate particulars of income amounting to ?4,86,99,262 related to Research & Development (R&D) expenditure. The Assessing Officer treated this expenditure as capital in nature, leading to the penalty of ?1,65,52,880. The ld. CIT (A) deleted the penalty, emphasizing that the appellant had disclosed all necessary details in a bona fide manner, which did not warrant penalty under section 271(1)(c). The appellant's status as a Government of India enterprise was also considered in line with legal precedents. The Tribunal upheld the deletion of the penalty, citing that the disallowances of the appellant's claims did not fall under the purview of section 271(1)(c) as they were not concealment or furnishing of inaccurate particulars of income.

Issue 2: Notice Specification under Section 271(1)(c):
The ld. CIT (A) deleted the penalty on the grounds that no valid notice under section 274 of the Act was issued to inform the assessee under which limb of section 271(1)(c) the penalty proceedings were initiated. This lack of specificity in the notice was crucial in determining the validity of the penalty. Legal precedents, including the decision in CIT vs. SSA's Emerald Meadows, were cited to support the argument that an unspecified notice renders the penalty proceedings unsustainable.

Issue 3: Treatment of R&D Expenditure:
The Assessing Officer treated the R&D expenditure as capital in nature, disallowing a significant portion of the claimed amount. However, the ld. CIT (A) found that the appellant had set up an R&D center and incurred expenses in a genuine manner. The treatment of the expenditure as capital and the subsequent penalty imposition were challenged based on the nature of the expenses and the appellant's compliance with disclosure requirements.

Issue 4: Deletion of Penalty by ld. CIT (A) based on Legal Grounds:
The ld. CIT (A) based the deletion of the penalty on multiple legal grounds. Firstly, the absence of a valid notice specifying the grounds for penalty initiation was highlighted. Secondly, it was emphasized that the disallowances of the appellant's expenditure claims did not amount to concealment or furnishing of inaccurate particulars of income. Legal precedents and judgments, including those by the Hon'ble Supreme Court, were cited to support the decision to cancel the penalty. The Tribunal upheld the ld. CIT (A)'s decision, finding no perversity or infirmity in the order, and dismissed the appeal filed by the Revenue.

This detailed analysis of the judgment addresses the key issues involved in the penalty imposition and subsequent deletion, providing a comprehensive overview of the legal reasoning and decisions made by the authorities involved.