2023 (6) TMI 1219 - HC - Income Tax

Penalty u/s 271(1)(c) - Defective notice - cessation/remission of liability u/s 41(1) - HELD THAT - Penalty proceedings entail civil consequences for the assessee. The AO is required to apply his mind to the material particulars, and indicate clearly, as to what is being put against the respondent/assessee when triggering the penalty proceedings. In case the AO concludes, that a case is made out under Section 271(1)(c) of the Act, he needs to indicate, clearly, as to which limb of the said provision is attracted. The reason we say so is, that apart from anything else, the pecuniary burden may vary, depending on the infraction(s) committed by the respondent/assessee. In a given case, where concealment has taken place, a heavier burden may be imposed, than in a situation where an assessee is involved in furnishing inaccurate particulars. Therefore, it is necessary for the AO to indicate, broadly, as to the provision/limb under which penalty proceedings are triggered against the assessee.Clearly, this has not happened in the instant case. As a matter of fact, even in the assessment order, whereby proceedings were triggered, there is no indication whatsoever, as to which limb of Section 271(1)(c) of the Act was triggered. Decided in favour of assessee.

Summary

Issues involved:
1. Condonation of delay in filing and re-filing the appeal.
2. Challenge to the penalty order passed by the AO under Section 271(1)(c) of the Income Tax Act.

Condonation of Delay:
The appellant/revenue sought condonation of a 24-day delay in filing and a 28-day delay in re-filing the appeal. The senior standing counsel representing the appellant stated that the delays were short, leading to the court allowing the applications subject to all just exceptions.

Challenge to Penalty Order:
The appeal pertained to the Assessment Year 2012-13 and aimed to challenge the order passed by the Income Tax Appellate Tribunal. The Assessing Officer flagged a substantial increase in expenses claimed by the respondent/assessee towards Real Estate Project Expenses compared to previous years. The AO issued a show-cause notice regarding this increase, to which the respondent explained the methodology used for estimating revenue based on project completion. The AO noted an amount in the project expenses that had not been incurred, leading to the disallowance of the loss claimed in the initial return. Additionally, an amount from trade payables was added by the AO under Section 41(1) of the Act due to outstanding payments without legal proceedings initiated. This resulted in penalty proceedings under Section 271(1)(c) of the Act, where a penalty of Rs. 4,36,41,961/- was levied. The respondent appealed to the CIT(A), which was rejected, leading to a second appeal to the Tribunal.

Tribunal's Decision on Penalty Order:
The Tribunal set aside the penalty order based on a defect in the penalty proceedings notice, which did not specify the grounds for imposing the penalty. Citing a Supreme Court judgment, the Tribunal quashed the penalty proceedings due to the lack of clarity in the notice. The Tribunal also referred to previous judgments by the Karnataka High Court and the Delhi High Court, emphasizing the importance of specifying the grounds for penalty imposition under Section 271(1)(c) of the Act. The Tribunal highlighted that penalty proceedings have civil consequences and the AO must clearly indicate the grounds for penalty imposition to ensure proper application of the law. The Court dismissed the appeal, stating that no substantial question of law arose for consideration.