2022 (9) TMI 450 - AT - Income Tax

Penalty u/s. 271(1)(c) - Allegation of defective notice u/s 274 - disallowances on account of property loss claimed and electricity expenses - HELD THAT - 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 as to what is the charge made against him so that he can respond accordingly. Having regard to the manner in which the Assessing Officer has issued the notice dated 28.12.2011 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 notice in this case has been issued in a stereotyped manner without applying mind which is bad in law, hence can not be considered a valid notice 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 penalty is not leviable - Appeal filed by the Assessee is allowed.

Summary

Issues:
- Appeal against penalty imposed under section 271(1)(c) of the Act for disallowances/additions on property loss and electricity expenses.
- Validity of penalty notice under section 274 read with 271(1)(c) for concealment of income or furnishing inaccurate particulars.

Analysis:
1. The appeal was filed against the penalty imposed by the Assessing Officer under section 271(1)(c) of the Act for disallowances/additions on property loss and electricity expenses. The Assessee declared a total income of Rs. 2,28,05,418/-, which led to scrutiny and disallowance of claimed losses. The Assessing Officer disallowed Rs.11,08,598/- for property loss and Rs.3,33,893/- for electricity expenses. The penalty of Rs.6,00,000/- was imposed for concealing taxable income. The Commissioner affirmed penalties corresponding to the disallowed amounts, leading to the appeal.

2. The main contention raised by the Assessee was the vagueness of the penalty notice issued under section 271(1)(c) on 28.12.2011, which did not specify the particular limb of the penalty. The Assessee argued that the penalty was not leviable due to this deficiency. The Assessee cited various judgments to support this argument. The authorities below upheld the penalty, stating no perversity or illegality in the orders.

3. The legal issue focused on whether the penalty notice specifying the limb under which penalty proceedings are initiated is essential for the validity of the penalty. Reference was made to the judgment in the case of M/s. SSA's Emerald Meadows, where the High Court held that the notice must clearly indicate the limb of section 271(1)(c) under which the penalty is being imposed. The Karnataka High Court in Manjunatha Cotton & Ginning Factory case emphasized the need for clarity in specifying the limb for penalty imposition.

4. The High Court of Delhi in M/s. Sahara India Life Insurance Company Ltd. case reiterated the requirement of specifying the limb of section 271(1)(c) in the penalty notice. It was observed that a standard proforma notice without specifying the relevant clause would indicate non-application of mind by the Assessing Officer. The penalty provisions of section 271(1)(c) apply when the Assessee conceals income or furnishes inaccurate particulars, with each limb carrying different meanings.

5. The Tribunal and various High Courts emphasized the importance of a clear penalty notice specifying the relevant limb under section 271(1)(c) for the Assessee to understand the charges and respond appropriately. In this case, the notice issued without specifying the limb was considered bad in law, indicating a lack of application of mind. Consequently, the penalty was deemed not leviable, and the penalty imposed by the Assessing Officer was deleted.

6. Ultimately, the appeal filed by the Assessee was allowed, and the penalty levied by the Assessing Officer and affirmed by the Commissioner was set aside. The judgment highlighted the significance of a clear and specific penalty notice under section 271(1)(c) to ensure the validity of penalty imposition.