2023 (1) TMI 222 - AT - Income Tax

Penalty u/s. 271(1)(c) - Defective notice u/s 274 - disallowance of sundry balances written off made by AO - As argued notices referred to above issued u/s 274 read with 271(1)(c) by the AO are vague having not specified any particular limb of the penalty and therefore the penalty is not leviable - HELD THAT - In the instant case the AO initiated the penalty under section 271(1)(c) of the Act for furnishing inaccurate particulars of Income and thereafter issued the notices u/s 274 r.w.s. 271(1)(c) of Act referred to above for concealment of the particulars of income or filling of inaccurate particulars of income but without specifying any particular limb and finally vide penalty order dated 30.03.2019 imposed the penalty on furnishing of inaccurate particulars of income. Assessee by way of raising the plea which is legal in nature challenged the Imposition of penalty mainly on the basis of notice itself therefore we deem it appropriate to decide the legal issue involved in the instant case first before dwelling into the merits of the case. Hon ble Karnataka High Court in the case of Manjunatha Cotton Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT observed where AO proposed to invoke first limb being concealment then the notice has to be appropriately marked. The Hon ble High Court also held that the standard proforma of notice under section 274 of the Act without striking of the irrelevant clause would lead to an inference of non-application of mind by the Assessing Officer and levy of penalty would suffers from non-application of mind. 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 AO has issued the notices referred to above under section 274 r.w.s. 271(1)(c) of the Act without specifying the limb under which the penalty proceeding has been initiated and proceeded with apparently goes to prove that notices in this case have been issued in a stereotyped manner without applying mind which is bad in law hence cannot be considered valid notices sufficient to impose penalty u/s 271(1)(c) - Appeal filed by the Assessee stands allowed.

Summary

Issues:
1. Penalty imposition under section 271(1)(c) of the Income-tax Act, 1961 based on disallowance of sundry balances written off.
2. Vagueness in the notices issued by the Assessing Officer under section 274 read with 271(1)(c) of the Act.
3. Legal challenge regarding the imposition of penalty without specifying the particular limb of the offense.
4. Interpretation of penalty provisions under section 271(1)(c) for concealing income or furnishing inaccurate particulars.
5. Application of relevant case laws in determining the validity of penalty notices.

Issue 1: Penalty Imposition Based on Disallowance of Sundry Balances:
The Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Act due to the addition of Rs.1,60,17,297 on account of disallowance of sundry balances written off. The penalty of Rs.52,22,411 was imposed by the Assessing Officer, which was affirmed by the Commissioner of Income-tax (Appeals). The Assessee, aggrieved by this, appealed to the Appellate Tribunal.

Issue 2: Vagueness in Notices Issued by Assessing Officer:
The Assessee contended that the notices issued by the Assessing Officer under section 274 read with 271(1)(c) of the Act were vague, as they did not specify any particular limb of the penalty. The Assessee argued that the vagueness in the notices rendered the penalty not leviable. The Appellate Tribunal considered this argument in detail.

Issue 3: Legal Challenge on Penalty Imposition Without Specific Limb Mention:
The Assessee challenged the imposition of penalty mainly based on the vagueness of the notices issued by the Assessing Officer. The legal issue involved whether the penalty order could be canceled if the penalty proceedings were initiated without explicitly mentioning the specific limb of the offense. The Tribunal analyzed relevant case laws to determine the validity of the penalty imposition.

Issue 4: Interpretation of Penalty Provisions for Concealing Income or Furnishing Inaccurate Particulars:
The Tribunal examined the penalty provisions under section 271(1)(c) of the Act, which are attracted when the Assessee conceals income or furnishes inaccurate particulars. It emphasized the importance of specifying the relevant limb to inform the Assessee of the charges against them. The Tribunal highlighted the distinction between concealing income and furnishing inaccurate particulars.

Issue 5: Application of Case Laws in Validating Penalty Notices:
The Tribunal referred to various judgments, including the Hon'ble Apex Court and High Courts decisions, to support its conclusion. It cited cases like M/s. SSA's Emerald Meadows and Manjunatha Cotton & Ginning Factory, emphasizing the necessity for the Assessing Officer to specify the limb under which the penalty proceedings are initiated. The Tribunal ultimately ruled in favor of the Assessee, holding that the penalty was not leviable due to the deficiencies in the notices issued by the Assessing Officer.

This detailed analysis of the judgment showcases the issues involved, the arguments presented by the parties, the legal interpretations made by the Tribunal, and the application of relevant case laws in arriving at the final decision to allow the Assessee's appeal and delete the penalty imposed.