2022 (1) TMI 77 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice u/s 274 - HELD THAT - In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under section 271(1)(c), read with section 274 . It is true, that assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other's defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a different statutory scheme that remains distinct from the assessment proceedings. Therefore, the assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness.Thus, it is clear that where assessment order clearly records satisfaction for imposing penalty on one or other, or both grounds mentioned in section 271(1)(c), a mere defect in notice, not striking off irrelevant matter would vitiate penalty proceedings. In the preset case notices two limbs are mentioned viz (i) concealed the particulars of income and (ii) furnished inaccurate particulars of income. The assessing officer has not ticked any of the limbs in the notice issued u/s 271(1)(c) of the Act therefore penalty proceedings are bad in law. On the identical facts our view is fortified by the judgment of the Hon ble Gujarat High Court in the case of Jyoti Ltd, 2013 (7) TMI 173 - GUJARAT HIGH COURT , wherein it was held where Assessing Officer in order of penalty did not come to a clear finding regarding penalty being imposed on concealment of income or on furnishing inaccurate particulars of income, Tribunal was justified in setting aside impugned penalty order. Thus, respectfully following the judgment of the Hon ble Bombay High Court and Hon ble Gujarat High Court, we delete the penalty. - Decided in favour of assessee.

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Concealment of income and furnishing inaccurate particulars of income.
3. Validity of penalty proceedings due to defective notice.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The appeals pertain to the imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 2011-12. The penalty was imposed by the Assessing Officer (AO) on the grounds of concealment of income and furnishing inaccurate particulars of income. The AO issued notices under Section 271(1)(c) r.w.s. 274 of the Act on 13.02.2017, following additions made during the assessment proceedings.

2. Concealment of Income and Furnishing Inaccurate Particulars of Income:
The AO made additions for disallowance of purchases (?1,34,64,592), sundry creditors (?15,91,100), and non-deduction of TDS (?47,025). The AO initiated penalty proceedings for concealment of income and furnishing inaccurate particulars. The CIT(A) confirmed the penalty on sundry creditors but deleted it for the estimated addition of ?1,43,622. The CIT(A) observed that the assessee failed to provide books of account or bills for verification of sundry creditors, thereby justifying the penalty.

3. Validity of Penalty Proceedings Due to Defective Notice:
The assessee contended that the penalty notice was defective as it did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. The Tribunal examined the notice and found that neither limb was ticked, making the notice defective. Citing the Bombay High Court's decision in Mohd. Farhan A. Shaikh and the Gujarat High Court's decision in Jyoti Ltd., the Tribunal held that the defective notice vitiated the penalty proceedings.

Conclusion:
The Tribunal allowed the appeals of the assessees, holding that the penalty proceedings were invalid due to the defective notice. The Tribunal emphasized that the assessee must be informed of the grounds for penalty proceedings through a clear and specific notice. The decision was based on the principle that ambiguity in the notice violates the principles of natural justice and renders the penalty proceedings invalid. The Tribunal's order applies mutatis mutandis to both appeals, providing relief to the assessees from the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.