2021 (8) TMI 863 - AT - Income Tax

Penalty u/s. 271(1)(c) - Defective notice u/s 274 - addition of unexplained jewellery was not an issue before the Assessing Officer and the penalty was initiated on the afterthought which is not justifiable under the law - HELD THAT - In the instant case also the inappropriate words in the penalty notice has not been struck off and the notice does not specify as to under which limb of the provisions, the penalty u/s. 271(1)(c) has been initiated, therefore, we are of the considered opinion that the penalty levied u/s. 271(1)(c) is not sustainable and has to be deleted. On merit, the penalty was imposed on the addition which was not at all the part of the assessment order and there was no justification given by the Assessing Officer for such a new amount for imposing penalty. The addition of unexplained jewellery was not an issue before the Assessing Officer. Thus, the appeal of the assessee is allowed.

Summary

Issues:
Penalty imposition under section 271(1)(c) without specifying the exact limb of the provision in the notice and absence of justification for penalty imposition based on new additions made during assessment.

Detailed Analysis:

Issue 1: Penalty Imposition under Section 271(1)(c)
The appeal challenged the penalty imposition of ?51,000 under section 271(1)(c) by the Assessing Officer (AO) without specifying the exact limb of the provision in the notice. The appellant contended that the penalty notice did not clearly indicate the charge of concealment of income or furnishing inaccurate particulars of income, rendering it improper. The appellant relied on legal precedents, including the decision in the case of Reliance Petro Product and Sahara Insurance, to support the argument that the penalty notice should specify the nature of the charge. The Department, however, argued that the penalty initiation was based on the satisfaction of the AO during assessment proceedings and that the notice adequately informed the appellant of the penalty imposition. The Department cited various judicial decisions supporting the validity of penalty proceedings even if one limb of the notice is not struck off. The Tribunal examined the issue in light of legal principles and held that the penalty notice lacking specificity on the charge was not as per prescribed provisions of the Income Tax Act, rendering the penalty unsustainable.

Issue 2: Justification for Penalty Imposition
Another aspect of the case involved the imposition of penalty based on new additions made during the assessment, specifically on account of unexplained jewellery. The appellant argued that the addition of unexplained jewellery was not part of the original assessment order and no justification was provided by the AO for imposing a penalty on this new amount. The Tribunal found that the addition of unexplained jewellery was not an issue considered by the AO during assessment proceedings, and therefore, there was no valid basis for imposing a penalty on this ground. The Tribunal, in line with legal precedents, concluded that the penalty imposed without proper justification on a new addition not addressed during assessment was unwarranted. Consequently, the Tribunal allowed the appeal of the assessee, quashing the penalty imposed under section 271(1)(c).

In conclusion, the Tribunal ruled in favor of the assessee, holding that the penalty imposition under section 271(1)(c) was unsustainable due to the lack of specificity in the penalty notice and the absence of justification for penalty imposition on a new addition not considered during assessment. The appeal was allowed, and the penalty was quashed.