2022 (7) TMI 329 - AT - Income Tax

Penalty u/s 271(1)(c) - additions for provision for liquidated damages charges and interest on TDS - HELD THAT - As quantum appeal in regard to the addition made by the ld AO on account of provision of liquidated damages stands deleted and once the quantum appeal is allowed no foundation is left for the levy of penalty on that account. See Fortune Technocomps P.Ltd. 2016 (5) TMI 859 - DELHI HIGH COURT where it has held that once the assessment order of the AO in the quantum proceedings was altered by the Ld.CIT(A), in a significant way, the very basis of initiation of penalty proceedings was nonexistent. Interest on TDS - AO in his assessment order had not mentioned a word regarding his satisfaction for proceeding with penalty proceedings u/s 271(1)(c) of the Act while passing the impugned penalty order dated 23.03.2018. The assessment order does not mention if penalty proceedings has to be for concealment of particulars of income or for furnishing inaccurate particulars of income. As a matter of fact the notice issued u/s 274 read with section 271 of the Act itself was ambiguous as it did not make it clear as to under which limb section of 271(1)(c) of the Act the notice was issued. On the other hand in the penalty order the ld AO has coined her own term concealed income by furnishing inaccurate particulars. Thus ambiguity in issue of notice and findings make the impugned order of levying penalty void ab initio and ld CIT(A)failed to consider the same. Appeal of assessee allowed.

Summary

Issues:
1. Appeal against penalty order u/s 271(1)(c) of the Income Tax Act, 1961.
2. Validity of penalty on additions for liquidated damages charges and interest on TDS.
3. Ambiguity in the penalty notice issued by the assessing officer.
4. Consideration of penalty proceedings under the correct limb of Section 271(1)(c).
5. Applicability of judicial precedents in determining penalty imposition.

Analysis:
1. The appeal was filed against the penalty order u/s 271(1)(c) of the Income Tax Act, 1961, by the Assessee challenging the order dated 10.06.2019 of the Ld CIT(A)-9, New Delhi. The original return declared a total loss, which was assessed at a lower loss amount. The penalty was imposed on certain additions made by the assessing officer after the decision of the CIT(A).

2. The penalty on additions for provision for liquidated damages charges and interest on TDS was partly upheld by the CIT(A). However, an error was found in adding a specific amount in the penalty order related to deemed dividend income, for which no penalty notice was issued. The Assessee contested the penalty imposition on these grounds.

3. The assessing officer observed that the Assessee concealed income by furnishing inaccurate particulars, leading to the penalty order. However, the Tribunal had deleted the addition related to provision for liquidated damages charges. The Tribunal's decision rendered the foundation for the penalty on that account non-existent, citing relevant judicial precedents.

4. Regarding the penalty on interest on TDS, it was noted that the assessing officer did not specify the basis for initiating penalty proceedings in the assessment order. The notice issued was ambiguous, failing to clarify under which limb of Section 271(1)(c) the penalty proceedings were initiated. Judicial precedents highlighted the importance of clarity in the notice for upholding penalty orders.

5. Citing the decision of the Hon'ble Delhi High Court and other judicial precedents, the Tribunal emphasized the necessity of specifying the exact basis for penalty initiation. The ambiguity in the notice and findings rendered the penalty order void ab initio. Consequently, the grounds raised by the Assessee were sustained, leading to the setting aside of the penalty order and the confirmation order of the CIT(A).

This comprehensive analysis of the judgment highlights the key issues involved, the arguments presented by the parties, and the legal principles applied by the Tribunal in reaching its decision.