2022 (4) TMI 845 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice u/s 274 - assessee claim for deduction of expenses under Section 57 - HELD THAT - The full Bench of the Hon ble Bombay High Court in the case Mohd. Farhan A Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT has held that a mere defect in the notice - not striking off the irrelevant matter, would vitiate the penalty proceedings. A perusal of the penalty notice, dated 26.12.2016, issued under Section 274 read with 271 of the Act would show that it in an omnibus show cause notice issued without deleting or striking off the inapplicable part. Similarly, the Assessment Order, dated 26.12.2016, is also vague as it states that Penalty proceedings u/s 271(1)(c) of the I.T. Act, 1961 are initiated separately for concealing and furnishing inaccurate particulars of income. Same is the case with the penalty order, dated 23.06.2017, passed under Section 271(1)(c) of the Act, as it also does not state under which limb of Section 271(1)(c) of the Act penalty has been levied. Thus the penalty proceedings stand vitiated on account of defect in the penalty notice - Decided in favour of assessee.

Summary

Issues involved:
Challenge to penalty order under Section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2014-15.

Detailed Analysis:

1. Grounds of Appeal: The Appellant challenged the penalty order of INR 2,90,287/- imposed under Section 271(1)(c) by the Commissioner of Income Tax (Appeals)-38. The Appellant argued that the penalty was unjust as there was no adequate opportunity to be heard, the claim for deduction was genuine, and the penalty notice did not specify the charge clearly.

2. Facts and Assessment: The Appellant, an individual with various income sources, had filed a return picked for detailed scrutiny. The Assessing Officer disallowed a claimed interest amount, leading to penalty proceedings under Section 271(1)(c) where a penalty of INR 2,90,287/- was levied and later confirmed by the CIT(A).

3. Arguments and Legal Position: The Appellant contended that the penalty was unwarranted due to a genuine belief in the deduction claim and cited a judgment supporting their case. The Departmental Representative supported the penalty but acknowledged the defect in the penalty notice.

4. Judgment and Legal Precedent: The Tribunal referred to a Full Bench decision of the Bombay High Court, which emphasized the importance of a clear and specific penalty notice. The Tribunal found that the penalty notice and subsequent orders were vague and did not specify the grounds clearly, following which the penalty order was set aside as invalid and without jurisdiction.

5. Conclusion: Grounds challenging the penalty notice's validity were allowed, citing the legal precedent, leading to the setting aside of the penalty order. As a result, the appeal by the Assessee was allowed, and the penalty order was deemed invalid and without jurisdiction. The Tribunal's decision was based on the principle that penalty proceedings must stand on their own, distinct from assessment proceedings, and require clear and specific notice to the assessee.

This detailed analysis highlights the grounds of appeal, factual background, legal arguments presented, the Tribunal's judgment based on legal precedent, and the ultimate conclusion setting aside the penalty order due to defects in the penalty notice and lack of specificity in the penalty proceedings.