2023 (4) TMI 240 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice u/s 274 - non striking off irrelevant part in notice - HELD THAT - As is evident from notice it is an omnibus notice without identifying the charge by striking off of the limb which is not applicable. In such circumstances, the penalty levied cannot be sustained. See case of Md. Farhan A. Shaikh . 2021 (3) TMI 608 - BOMBAY HIGH COURT - Similar proposition was laid down in SAHARA INDIA LIFE INSURANCE COMPANY, LTD. 2019 (8) TMI 409 - DELHI HIGH COURT - Thus, since the penalty notice is omnibus and the charge has not been specified, the penalty is not sustainable. Disallowance of expenditure in connection with QIP and disallowance of claim of deduction u/s 80-IB on the ground of allocation of interest expenses - It cannot be said that there is concealment of income or furnishing of inaccurate particulars of income on the issue on which the penalty has been levied. All due disclosures are there. Primary dispute is with respect of nature of expenses i.e. revenue vs capital. These particulars have been completely disclosed in Income Tax Return. Hence if the claim is not accepted merely on the ground of the same being classified capital by Revenue authorities, in such as a situation the case of Reliance Petro products 2010 (3) TMI 80 - SUPREME COURT comes to the rescue of the assessee. In this case it was held that mere disallowance of a claim which is not ex-facie bogus cannot lead to levy of penalty. In these circumstances, in our considered opinion, the assessee deserves to succeed.

Summary

Issues involved:
The judgment involves the levy of penalty under section 271(1)(C) of the Income Tax Act, 1961 for Assessment Year 2007-08 based on the disallowance of expenditure related to Qualified Institutional Placement (QIP) and deduction under section 80-IB.

Levy of Penalty - Disallowance of Expenditure in Connection with QIP:
The Assessing Officer (AO) imposed a penalty of Rs. 2,30,58,990/- for AY 2007-08, based on disallowance of QIP expenses. The CIT(A) and ITAT successively reduced the disallowance to Rs. 6,75,20,806/-. The primary dispute was regarding the nature of expenses, whether revenue or capital, with the assessee arguing that the expenses were revenue in nature due to utilization of QIP proceeds for working capital. The assessee contended that there was no concealment of income or furnishing of inaccurate particulars, as all details were disclosed in the return. The ITAT ruled in favor of the assessee, citing previous judgments and deleted the penalty.

Levy of Penalty - Disallowance of Deduction under Section 80-IB:
The AO initially disallowed a deduction under section 80-IB amounting to Rs. 68,29,057/-, which was reduced by the CIT(A) to Rs. 3,19,714/-. The ITAT dismissed the revenue's appeal. The assessee argued that the disallowance was on the ground of admissibility and capital nature of expenses, not on concealment or inaccurate particulars. The assessee maintained that there was complete disclosure of facts, and the disallowance did not warrant a penalty. Relying on the principle established in the Reliance Petro Products case, the ITAT concluded that the penalty was unjustified and deleted it.

Conclusion:
The ITAT, after considering the arguments and precedents, ruled in favor of the assessee and deleted the penalty imposed under section 271(1)(C) for the disallowance of expenditure in connection with QIP and deduction under section 80-IB. The judgment emphasized the importance of proper disclosure of facts and distinguished between disallowance based on nature of expenses and actual concealment of income.