2022 (1) TMI 231 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice u/s 274 - non striking off inappropriate words - Addition on account of unexplained investment and undeclared interest income - HELD THAT - A perusal of the notice issued u/s.274 r.w.s. 271 issued by the AO shows that the inappropriate words in the said notice have not been struck off. As in the case of PCIT vs Sahara India Life Insurance Company Ltd. 2019 (8) TMI 409 - DELHI HIGH COURT held that the notice issued by the Assessing Officer is bad in law since it did not specify under which limb of section 271(1)(c) penalty proceedings have been initiated i.e. whether for concealment of income or for furnishing of inaccurate particular of income. Since, the AO in the instant case has not struck off the inappropriate words in the notice issued u/s. 274 r.w.s. 271 of the Act dated 29th December, 2016 and the notice does not indicate the proper charge, i.e., under which limb of section 271(1)(c) of the I.T. Act the penalty proceedings have been initiated, therefore we delete penalty levied - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act - Concealment of income and furnishing inaccurate particulars.

Analysis:
1. The appeal was filed against the order of the CIT(A) sustaining a penalty of ?10,88,922 imposed by the AO under section 271(1)(c) of the Income Tax Act for the Assessment Year 2014-15.

2. The AO made additions to the total income of the assessee, including disallowance of advertisement expenses, unexplained investment, commission expenses, advances received, and undeclared income of FD interest.

3. Subsequently, the AO initiated penalty proceedings under section 271(1)(c), and the penalty was levied based on unexplained investment and undeclared interest income. The CIT(A) confirmed the penalty.

4. The assessee appealed to the Tribunal, challenging the penalty imposition on grounds of concealment, stating that the investment in property and interest income were duly recorded in the books of account.

5. The assessee argued that the penalty proceedings were invalid due to vague notices and lack of specific charges against the assessee for concealment or furnishing inaccurate particulars.

6. The Tribunal considered the arguments and found merit in the contention regarding the validity of penalty proceedings. Citing a previous High Court decision, the Tribunal held that the penalty proceedings were not in accordance with the law due to the vague notice lacking specific charges.

7. Consequently, the Tribunal allowed the appeal, directing the deletion of the penalty levied by the AO and confirmed by the CIT(A).

8. The decision was pronounced on 23.12.2021, in favor of the assessee.