2022 (5) TMI 857 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice u/s 274 - as argued notice issued for concealment of income/ furnishing of particulars of Income, without specifying the particular limb of the penalty - HELD THAT - The Hon'ble Karnataka High Court in the case of Manjunatha Cotton Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT observed that the levy of penalty has to be clear as to the limb under which it is being levied. As per Hon'ble High Court, where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. The Hon'ble High Court held that the standard proforma of notice under section 274 of the Act without striking of the irrelevant clause would lead to an inference of non-application of mind by the Assessing Officer and levy of penalty would suffers from non-application of mind. The penalty provisions of section 271(1)(c) of the Act are attracted, where the Assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is also a well-accepted proposition that the aforesaid two limbs of section 271(1)(c) of the Act carry different meanings. Therefore, it is imperative for the Assessing Officer to specify the relevant limb so as to make the Assessee aware, what is the charge made against him so that he can respond accordingly. In the present case having regard to the manner in which the Assessing Officer has issued notices dated 13-12-2016, 03-04-2017 and 12-06-2017 under section 274 r.w.s. 271(1)(c) of the Act without specifying the limb under which the penalty proceedings have been initiated and proceeded with, apparently goes to prove that notices in this case have been issued in a stereotyped manner without applying mind which is bad in law, hence can not be considered a valid notices sufficient to impose penalty u/s 271(1)(c) of the Act and therefore we are of the considered view that under these circumstances, the levy of penalty is not justifiable. On merits of this case AO did not find the claim of the Assessee as maintainable and made the addition and consequently imposed the penalty which stands affirmed by the ld. Commissioner. It is not the case of the Revenue that the Assessee has acted deliberately in defiance of law, or is guilty of contumacious or dishonest conduct, or acts in conscious disregard of its obligation and therefore mere making of a claim, which is not sustainable in law, would not, ipso facto, amount to furnishing of inaccurate particulars regarding the income of the Assessee and would, therefore, not automatically result in a penalty order against the Assessee as held by the Hon ble Apex Court in the case of Reliance Petro Products Pvt. 2010 (3) TMI 80 - SUPREME COURT while dealing with the penalty imposed for claiming expenditure which was declined to be allowed u/s 14A of the Act, hence on merit as well the penalty under challenge is not sustainable - Decided in favour of assessee.

Summary

Issues:
- Disallowance of business promotion expenses
- Imposition of penalty for concealment/furnishing inaccurate particulars of income
- Validity of penalty notices issued by the Assessing Officer
- Merits of the case regarding penalty imposition

Analysis:
1. Disallowance of Business Promotion Expenses: The Assessee claimed expenses of Rs. 48,53,671 under "business promotion expenses," disallowed by the Assessing Officer (AO) due to lack of proof of business expediency. The AO imposed a penalty for concealment of income, which was confirmed by the Commissioner. The Assessee challenged this disallowance and penalty order on various grounds.

2. Imposition of Penalty: The Assessee contended that the penalty notices issued by the AO were vague and did not specify the particular limb of the penalty, making the penalty unjustifiable. The Assessee cited judgments of the Hon'ble Apex Court and High Courts to support this argument. The Revenue, on the other hand, supported the orders passed by the authorities below.

3. Validity of Penalty Notices: The Tribunal analyzed the legal issue of whether the penalty could be justified based on the vague notices issued by the AO. Citing judgments like M/s. SSA's Emerald Meadows and Manjunatha Cotton & Ginning Factory, the Tribunal emphasized the importance of specifying the relevant limb under which the penalty proceedings are initiated. The Tribunal found that the notices issued in this case lacked specificity and were issued in a stereotyped manner without proper application of mind, rendering them invalid for imposing a penalty.

4. Merits of the Case: The Tribunal further examined the merits of the case and found that the Assessee's claim, though disallowed, did not amount to deliberate defiance of law or dishonest conduct. Referring to the case law of Reliance Petro Products Pvt. Ltd., the Tribunal concluded that the penalty imposed for the disallowed expenditure was not sustainable. Therefore, the Tribunal decided to delete the penalty imposed by the AO and affirmed by the Commissioner.

5. Final Decision: After thorough analysis, the Tribunal allowed the appeal filed by the Assessee, setting aside the penalty order. The Tribunal ordered the Assessing Officer to cancel the penalty levied, considering the invalidity of the penalty notices and the lack of merit in imposing the penalty for the disallowed business promotion expenses.

This detailed analysis of the judgment highlights the key issues, legal arguments, precedents cited, and the ultimate decision reached by the Tribunal in favor of the Assessee.