2022 (3) TMI 374 - AT - Income Tax

Penalty u/s. 271(1)(c) - Defective notice u/s 274 - validity of notice issued u/s 274 - Non striking of irrelevant portions - mere failure to tick mark the applicable grounds - As argued AO had not struck off the specific limb or had not specified the specific offence committed by the assessee as to whether the assessee had concealed the particulars of income or furnished inaccurate particulars of income or whether the assessee had committed both the offences - HELD THAT - Penalty notice u/s. 274 r.w.s. 271(1)(c) is placed on record wherein we find that the ld. AO had not struck off the specific limb or had not specified the specific offence committed by the assessee as to whether the assessee had concealed the particulars of income or furnished inaccurate particulars of income or whether the assessee had committed both the offences. Hence, the penalty notice issued by the ld. AO becomes a defective notice. We find that the Full Bench of the Hon'ble Jurisdictional High Court in the case of Mohd. Farhan A. Shaikh vs. DCIT 2021 (3) TMI 608 - BOMBAY HIGH COURT had categorically held that not striking off irrelevant portion in the penalty notice would vitiate the penalty proceedings. Accordingly, the Hon'ble Jurisdictional High Court had cancelled the penalty We hereby direct the ld. AO to cancel the penalty levied in the case of the assessee. Accordingly, the grounds raised by the assessee are allowed.

Summary

Issues:
- Imposition of penalty u/s. 271(1)(c) of the Income Tax Act, 1961.

Analysis:
1. Imposition of Penalty: The appeal in ITA No. 7958/Mum/2019 for A.Y. 2014-15 questioned the imposition of a penalty of ?2,08,854/- u/s. 271(1)(c) of the Act. The assessment for the relevant year was completed, restricting the short term capital loss on sale of currency. The penalty proceedings were initiated by the AO based on this assessment. However, the penalty notice issued was found to be defective as it did not specify the specific offence committed by the assessee. Citing the case of Mohd. Farhan A. Shaikh vs. DCIT, it was noted that not striking off irrelevant portions in the penalty notice would vitiate the penalty proceedings. Consequently, the penalty was directed to be cancelled, following the principles laid down in the mentioned case.

2. Effect of Supreme Court's Decision: The judgment discussed the effect of the Supreme Court's decision in Dilip N. Shroff Case on the issue of non-application of mind when irrelevant portions of printed notices are not struck off. It emphasized the importance of precision in notices to avoid ambiguity and ensure fairness and justice. The judgment highlighted that contravention of mandatory conditions for communication to be valid is fatal, and any infraction of a mandatory procedure leading to penal consequences implies prejudice. The principles of natural justice were also underscored, especially in cases involving section 271(1)(c) which is considered a mandatory provision with significant consequences.

3. Conclusion: In conclusion, the Tribunal directed the AO to cancel the penalty levied on the assessee due to the defective penalty notice. The decision was based on the principles outlined in the relevant case law and the importance of ensuring procedural fairness and adherence to statutory requirements. As a result, the appeal of the assessee was allowed, and the penalty was set aside.

This detailed analysis of the judgment highlights the key issues, legal principles, and the Tribunal's decision in the matter of imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2014-15.