2022 (12) TMI 794 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice u/ 274 - non-strike off of the irrelevant part - HELD THAT - As could be seen from the above the 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(1)(c) 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(1)(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. A.O passed the assessment order without mentioning the exact limb of the penalty proceedings to be initiated against the assessee and consequent to the same issuance of 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.Appeal filed by the assessee is allowed.

Summary

Issues involved:
1. Penalty u/s 271(1)(c) sustained by CIT (Appeals) without considering facts.
2. Failure to specify the relevant limb of penalty proceedings in the notice u/s 274.
3. Interpretation of penalty provisions under Section 271(1)(c) of the Act.
4. Application of legal principles regarding the validity of penalty notices.
5. Compliance with principles of natural justice in penalty proceedings.

Analysis:

Issue 1: Penalty u/s 271(1)(c) sustained by CIT (Appeals) without considering facts.
The appellant contested the penalty imposed under Section 271(1)(c) by the CIT (Appeals), arguing that disallowance of an expense does not imply inaccurate particulars of income. However, the appellant failed to appear before the tribunal despite notices. The tribunal proceeded to examine the case based on the materials on record.

Issue 2: Failure to specify the relevant limb of penalty proceedings in the notice u/s 274.
The tribunal noted that the Assessing Officer (A.O.) initiated penalty proceedings without specifying the exact limb under Section 271(1)(c) against the assessee. The tribunal emphasized that the A.O. must clearly indicate the grounds for penalty to enable the assessee to respond adequately. The tribunal cited a Bombay High Court decision emphasizing the importance of informing the assessee of the precise charge in penalty proceedings.

Issue 3: Interpretation of penalty provisions under Section 271(1)(c) of the Act.
The tribunal highlighted that penalty under Section 271(1)(c) is attracted when the assessee conceals income or furnishes inaccurate particulars. It stressed the necessity for the A.O. to specify the exact limb of penalty proceedings to ensure the assessee's awareness of the charges. The tribunal referenced legal precedents to support the requirement for precision in penalty notices.

Issue 4: Application of legal principles regarding the validity of penalty notices.
Referring to a Bombay High Court decision, the tribunal concluded that the penalty notice issued without striking off irrelevant portions and failing to specify the relevant limb was defective. The tribunal held that such notices lacked precision and clarity, violating principles of natural justice. Consequently, the tribunal deemed the penalty order unsustainable due to procedural flaws in the notice issuance.

Issue 5: Compliance with principles of natural justice in penalty proceedings.
In light of the legal position and procedural irregularities in the penalty notice, the tribunal found the penalty order unjustified. It emphasized the importance of adherence to natural justice principles in penalty proceedings. Ultimately, the tribunal allowed the appeal, ruling in favor of the assessee and deleting the penalty order.

This comprehensive analysis of the judgment highlights the procedural deficiencies in the penalty proceedings and underscores the significance of clarity and precision in penalty notices to ensure fairness and compliance with legal principles.