2022 (12) TMI 337 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice u/s 274 - Allegation of non specification of limb under which the penalty proceedings having initiated - disallowance of prior period expenses - burden of proof on the assessee - HELD THAT - Hon'ble Bombay High Court (Full Bench at Goa) in the case of Mr. Mohd. Farhan A. Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT while dealing with the issue of non-strike off of the irrelevant part in the notice issued u/s.271(l)(c) of the Act, held that assessee must be informed of the grounds of the penalty proceedings only through statutory notice and an omnibus notice suffers from the vice of vagueness. Ratio of this full bench decision of the Hon'ble Bombay High Court (Goa) squarely applies to the facts of the assessee's case as the notice u/s. 274 r.w.s. 271(l)(c) of the Act were issued without striking off the irrelevant portion of the limb and failed to intimate the assessee the relevant limb and charge for which the notices were issued. In this background of the above said legal position and having regarded to the manner in which A.O issued the notice u/s 274 which the A.O. has fail to specify the limb under which the penalty proceedings having initiated and proceeded with, apparently goes to prove that above notices have been issued in a mechanical manner without applying the mind. Being so, the said notice issued u/s 271(1)(c) of the Act is bad in law consequently the penalty levied there under cannot be sustained. - Decided in favour of assessee.

Summary

Issues:
Appeal against deletion of addition on account of disallowance of prior period expenses under section 271(1)(c) - Burden of proof on the assessee.

Analysis:
The Revenue appealed against the deletion of an addition of Rs.1,92,68,281 on account of disallowance of prior period expenses by the ld. Commissioner of Income Tax (Appeals). The assessee had declared a filing income at 'NIL' and claimed a loss of Rs. 9,92,88,186 for the assessment year 2014-15. The assessment order made various additions and disallowances, including prior period expenses, interest income, and disallowance under section 14A. Subsequently, penalty proceedings were initiated under section 271(1)(c) of the Income Tax Act, and a penalty of Rs. 59,69,520 was levied against the assessee.

The CIT(A) deleted the penalty imposed by the AO on account of disallowance of prior period expenses, leading to the Revenue's appeal. Despite the absence of the assessee during the proceedings, the Tribunal proceeded to hear the Revenue's case. The AO had disallowed the prior period expenses, leading to the initiation of penalty proceedings under section 271(1)(c) of the Act. However, the notices issued for penalty failed to specify the relevant limb under which the penalty proceedings were initiated, indicating a lack of application of mind.

Citing the Hon'ble Bombay High Court's full bench decision, the Tribunal emphasized that the assessee must be informed of the grounds of penalty proceedings through a statutory notice. The notices issued without striking off irrelevant portions were deemed vague and failed to specify the charge against the assessee. Consequently, the Tribunal held that the penalty levied under section 271(1)(c) could not be sustained due to the defective notices and lack of specificity regarding the penalty proceedings' grounds.

In light of the legal position and the mechanical issuance of notices without specifying the relevant limb for penalty proceedings, the Tribunal dismissed the Revenue's appeal. The Tribunal's decision was based on the principle that penalty proceedings must stand on their own, with clear and specific charges against the assessee. The lack of specificity in the notices issued for penalty proceedings rendered the penalty unsustainable, leading to the dismissal of the Revenue's appeal.

The Tribunal's detailed analysis focused on the necessity of clear and specific notices in penalty proceedings under section 271(1)(c) of the Income Tax Act. The judgment underscored the importance of informing the assessee of the grounds for penalty through statutory notices and highlighted the consequences of issuing vague notices without specifying the relevant charges.