2022 (5) TMI 1089 - AT - Income Tax

Penalty u/s 271(1)(c ) - Defective notice - non-mentioning of relevant limb - As argued penalty had been initiated for both the offences, which is not permissible under law as it suffers from the vice of non-application of mind - HELD THAT - We are of the view that non-mentioning of relevant limb in the penalty notice is a substantive defect and infirmity which goes to the root of the matter and is not curable a the later stage. The case of the assessee is squarely covered by the decision of the Hon ble Apex Court case of CIT vs. SSA s Emerald Meadows 2016 (8) TMI 1145 - SC ORDER - In the said decision , the Hon ble Court has dismissed the SLP filed by the Revenue by observing that there is no merit in the petition of the revenue upholding the order of Hon ble High Court 2016 (8) TMI 1145 - SC ORDER wherein the decision of the coordinate division bench in the case of CIT Vs Manjunatha Cotton Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT has been followed. In all the above decision it has been held that non mentioning of relevant limb or non striking off of irrelevant limb in the penalty notice is a substantive defect in the imitation of proceedings itself and the consequent penalty levied on the basis of such defective notice can not be sustained. In view of these facts and circumstances of the case, we are inclined to set aside the order passed by the Ld. CIT(A) and direct the AO to delete the penalty. The ground no. 3 is allowed.

Summary

Issues:
Challenge to penalty imposition under section 271(1)(c) of the Income Tax Act, 1961 based on defective notice lacking specificity.

Analysis:
The appeal involved a challenge against the penalty imposed by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act, 1961. The key contention was regarding the defective notice issued by the AO, which did not specify the limb on which the penalty was proposed to be levied. The appellant argued that the notice was issued in a mechanical manner without proper application of mind, depriving the assessee of the opportunity to respond to the specific charge. The appellant relied on the decision of the Hon'ble Apex Court in a relevant case to support their argument.

Upon reviewing the contentions from both sides, the Tribunal observed that the notice issued by the AO lacked specificity regarding the limb under which the penalty was to be imposed. The AO eventually imposed a penalty for furnishing inaccurate particulars and concealment of income without clearly specifying the relevant limb. The Commissioner of Income Tax (Appeals) also failed to address this legal issue adequately, leading to a flawed decision. The Tribunal noted that the non-mentioning of the relevant limb in the penalty notice was a substantive defect that could not be cured at a later stage. Citing relevant legal precedents, the Tribunal concluded that penalties based on such defective notices could not be sustained.

In light of the above analysis, the Tribunal allowed the appeal of the assessee on the legal issue concerning the defective penalty notice. Consequently, the Tribunal directed the AO to delete the penalty imposed. As the appeal was allowed on the legal issue, other grounds raised by the assessee did not require adjudication. The appeal of the assessee was ultimately allowed, and the order was pronounced in open court on 11th May 2022.