2022 (2) TMI 813 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - defective notice u/s 274 - Non specification of charge - HELD THAT - Since the AO in the instant case has not specified under which limb of the provisions of section 271(1)(c) i.e. whether for concealment of income or for furnishing of inaccurate particulars of income he has initiated the penalty proceedings therefore such penalty proceedings not being in accordance with the law cannot be sustained. Accordingly the penalty levied by the AO and sustained by the CIT(A) is directed to be cancelled.- Decided in favour of assssee.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the IT Act.

Detailed Analysis:

Issue: Levy of Penalty under Section 271(1)(c) of the IT Act

The case involved the appeal filed by the assessee against the order of the CIT(A)-16, New Delhi, regarding the levy of a penalty of ?1,71,212 under section 271(1)(c) of the IT Act for the assessment year 2009-10. The assessee had declared a loss of ?5,01,092 in the return of income filed. The AO conducted a search and seizure operation under sections 132/133A of the IT Act and completed the assessment, making additions to the income surrendered by the assessee. Subsequently, penalty proceedings were initiated under section 271(1)(c) by the AO, which was confirmed by the CIT(A).

The primary contention raised by the assessee was the lack of specificity in the penalty notice issued by the AO. The assessee argued that the notice did not clearly specify under which limb of the provisions of section 271(1)(c) the penalty proceedings were initiated, i.e., for concealment of income or furnishing inaccurate particulars of income. The assessee relied on the decision of the Hon'ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory, emphasizing the necessity for the notice to state the grounds mentioned in section 271(1)(c) to meet the principles of natural justice.

The Tribunal observed that both notices issued by the AO and the assessment order failed to specify under which limb of section 271(1)(c) the penalty proceedings were initiated. Citing the decision of the Hon'ble Karnataka High Court, the Tribunal held that penalty proceedings initiated on one limb and finding the assessee guilty of another limb would be against the law. As the AO did not comply with the requirement of specifying the grounds for penalty initiation, the penalty levied by the AO and confirmed by the CIT(A) was deemed unsustainable in law.

Consequently, the Tribunal directed the cancellation of the penalty levied by the AO and sustained by the CIT(A, based on the legal ground of lack of specificity in the penalty notice. As the assessee succeeded on this legal ground, the Tribunal did not address the grounds challenging the addition on merit, deeming them academic in nature. Ultimately, the appeal filed by the assessee was allowed.

This detailed analysis highlights the key legal aspects and arguments presented in the judgment concerning the levy of penalty under section 271(1)(c) of the IT Act.