2022 (3) TMI 1020 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice u/s 274 - disallowance of depreciation and disallowance of brought forward losses and unabsorbed depreciation - HELD THAT - On perusal of the notice it is clear that Assessing Officer has not specified whether the penalty is being levied on account of concealment of particulars of income or furnishing of inaccurate particulars of income. See case of Mohd. Farhan A. Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT - thus we delete the penalty on account of invalid notice issued under section under section 274 read with section 271(1)(c) - Decided in favour of assessee.

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act.
2. Non-application of mind by the Assessing Officer in initiating and levying penalty.
3. Defect in the notice issued under section 274 read with section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The primary issue revolves around the levy of penalty amounting to ?84,03,212 under section 271(1)(c) of the Income Tax Act for the assessment year 1999-2000. The penalty was imposed for the disallowance of depreciation and brought forward business losses and unabsorbed depreciation. The Assessing Officer initiated the penalty proceedings on 31.10.2002 and concluded that the assessee had furnished inaccurate particulars of income, thereby concealing its actual income. The total disallowance amounted to ?2,40,09,176, leading to the penalty.

2. Non-Application of Mind by the Assessing Officer:
The assessee contended that the Assessing Officer failed to apply his mind while initiating and levying the penalty. The officer initiated the penalty for both limbs of section 271(1)(c), i.e., for concealment of particulars of income and furnishing inaccurate particulars thereof, without specifying the exact charge. The assessee argued that the penalty was levied without proper application of mind, as evidenced by the reference to Explanation 1(B) to section 271(1), which is only applicable to concealment of particulars of income.

3. Defect in Notice Issued under Section 274 Read with Section 271(1)(c):
The assessee highlighted a defect in the notice issued under section 274 read with section 271(1)(c), dated 30.10.2002. The notice did not specify whether the penalty was being levied for concealment of income or furnishing inaccurate particulars of income. This defect was argued to be fatal to the penalty proceedings. The assessee relied on the decision of the jurisdictional High Court in the case of Mohd. Farhan A. Shaikh Vs. DCIT (2021) 434 ITR 1 (Bom), which held that such defects in the notice vitiate the penalty proceedings.

Judgment:
After considering the arguments and material on record, the Tribunal observed that the Assessing Officer had not specified in the notice whether the penalty was for concealment of income or furnishing inaccurate particulars of income. The Tribunal referred to the decision of the jurisdictional High Court in Mohd. Farhan A. Shaikh Vs. DCIT, which emphasized that an omnibus notice without specifying the exact charge is vague and invalid.

The Tribunal also referred to the decision of the coordinate Bench of the ITAT, Mumbai, in the case of M/s Bhavya Shashank Shanbhag Vs. DCIT, which followed the jurisdictional High Court's ruling and deleted the penalty on similar grounds.

Based on these precedents, the Tribunal concluded that the notice issued under section 274 read with section 271(1)(c) was invalid due to its vagueness and lack of specificity. Consequently, the penalty levied was directed to be deleted. The Tribunal did not adjudicate other grounds on merits since the penalty was deleted on the basis of the invalid notice.

Conclusion:
The Tribunal allowed the appeals of the assessee, directing the deletion of the penalty levied under section 271(1)(c) due to the defective notice issued under section 274. The judgment emphasized the importance of specifying the exact charge in penalty notices to ensure fairness and compliance with legal requirements.

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