2021 (8) TMI 964 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice u/s 274 - Assessment framed u/s 92CA(3) - HELD THAT - Following the decisions rendered in the cases of CIT vs. Manjunatha Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT , CIT vs. SSA s Emerald Meadows 2016 (8) TMI 1145 - SC ORDER and Pr. CIT Vs Sahara India Life Insurance Company Ltd 2019 (8) TMI 409 - DELHI HIGH COURT 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 penalty proceedings initiated u/s 271(1)(c) are not sustainable. Thus when the very initiation of the penalty by way of issuance of vague and ambiguous notice u/s 271(1)(c) read with section 274 of the Act without specifically charging the assessee if he has concealed the particulars of income or has furnished inaccurate particulars of such income, subsequent penalty proceedings are not sustainable, hence penalty levied by the AO and confirmed by the Id. CIT (A) is not sustainable. Assessment framed u/s 92CA(3) - TPO simply did not accept the bench marking of the assessee and has directed the Assessing Officer to consider the levy of penalty u/s 271(1)(c) of the Act in accordance with Explanation 7. As decided in VERIZON INDIA PVT. LTD. 2016 (8) TMI 1287 - DELHI HIGH COURT in the absence of any overt act, which disclosed conscious and material suppression, invocation of Explanation 7 in a blanket manner could not only be injurious to the assessee but ultimately would be contrary to the purpose for which it was engrafted in the statute. It might lead to a rather peculiar situation where the assessee who might otherwise accept such determination may be forced to litigate further to escape the clutches of Explanation 7 - we do not find any merit in levy of penalty u/s 271(1)(c) of the Act.- Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2012-13.

Analysis:
The appeal challenged the penalty of ?90,27,690 imposed under section 271(1)(c) of the Income Tax Act, 1961. The penalty was based on an enhanced income assessment by the Transfer Pricing Officer (TPO). The TPO suggested examining the feasibility of penalty under Explanation 7 of the Act. The Assessing Officer initiated penalty proceedings by issuing a notice that was vague and ambiguous, not specifying whether it was for concealment of income or for inaccurate particulars. The Tribunal cited legal precedents where penalties were quashed due to unspecified notices. The High Courts' decisions emphasized the importance of clear notices under which limb of section 271(1)(c) the penalty was initiated. The Tribunal found the penalty proceedings unsustainable due to the vague notice, following the legal principles established by the High Courts.

Subsequently, the Tribunal delved into the merits of the case. The TPO rejected the assessee's benchmarking approach, directing consideration of penalty under section 271(1)(c) in accordance with Explanation 7. The Tribunal referred to a High Court case highlighting the erroneous invocation of Explanation 7 without conscious suppression by the assessee. In light of the legal principles and factual circumstances, the Tribunal found no merit in upholding the penalty under section 271(1)(c) of the Act. Consequently, the appeal was allowed, directing the Assessing Officer to delete the penalty amount.

In conclusion, the Tribunal found the penalty proceedings unsustainable due to the vague notice issued by the Assessing Officer. Additionally, the Tribunal analyzed the bench marking rejection by the TPO and found no justification for the penalty under section 271(1)(c) based on the legal principles and factual considerations. The Tribunal allowed the appeal, directing the deletion of the penalty amount.