2023 (12) TMI 400 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - defective notice - as alleged non specification of clear charge - Correct head of income - Assessee had offered the rental income as business income as compared to Income from house property as done by AO - HELD THAT - AO initiated penalty u/s 271(1)(c) of the Act for furnishing inaccurate particulars of Income leading to concealment of income and thereafter issued the notice u/s 274 read with 271(1)(c) of the Act without specifying any particular limb of the penalty and finally imposed the penalty for furnishing inaccurate particulars of income. The Assessee 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, instead of going into other issue/merits of the case. The Hon'ble Karnataka High Court in the case of Manjunatha Cotton Ginning Factory, 2013 (7) TMI 620 - KARNATAKA HIGH COURT observed that the levy of penalty has to be clear as to the limb under which it is being levied. As per Hon'ble High Court, where the Assessing Officer 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 off 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. In the present case AO has issued the notice u/s 274 r.w.s. 271(1)(c) of the Act without specifying the limb under which the penalty proceedings have been initiated and proceeded with, apparently goes to prove that notice in this case has been issued in a stereotyped manner without applying mind which is bad in law, hence can not be considered a valid notice sufficient to impose penalty u/s 271(1)(c) of the Act and therefore we are of the considered view that under these circumstances, the penalty is not leviable - Decided in favour of assessee.

Summary

Issues:
The judgment involves the affirmation of levy of penalty under section 271(1)(c) of the Income-tax Act, 1961 for multiple assessment years by the Appellate Tribunal ITAT Mumbai.

Issue 1: Background and Assessment Details
The Assessee, a Private Limited Company engaged in the business of builder and developer, filed its return of income for A.Y. 2009-10 declaring Nil income. The assessment order recomputed the income at Rs. 10,13,170. Subsequently, the case was reopened under section 147 of the Act, and the Assessing Officer treated the rental income as "Income from house property" instead of "business income." Various adjustments were made, including adding deemed interest on a security deposit.

Issue 2: Penalty Proceedings
Upon confirmation of the assessment by the CIT(A), penalty proceedings were initiated under section 271(1)(c) of the Act. The Assessing Officer levied a penalty of Rs. 3,13,069, which was 100% of the tax sought to be evaded on the income of Rs. 10,13,170. The Assessee challenged the levy of penalty before the Tribunal.

Issue 3: Legal Challenge and Decision
The Assessee contended that the penalty notice suffered from lacunae as the inapplicable portion was not struck off, rendering the penalty order invalid. The Tribunal, after considering the arguments, focused on the legal issue of the validity of the penalty notice. Citing relevant case law, including judgments from the Hon'ble Apex Court and High Courts, the Tribunal found that the notice issued by the Assessing Officer under section 271(1)(c) without specifying the limb of penalty proceedings was bad in law. The Tribunal emphasized the necessity of clearly specifying the relevant limb of penalty under section 271(1)(c) to inform the Assessee adequately. Consequently, the Tribunal held that the penalty was not leviable and deleted the penalty imposed by the Assessing Officer, thereby allowing the Assessee's appeal.

Conclusion
In conclusion, the Appellate Tribunal ITAT Mumbai allowed all the appeals filed by the Assessee, emphasizing the importance of specifying the relevant limb of penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961. The Tribunal's decision highlighted the legal requirement for clarity in penalty notices to ensure fair proceedings and informed responses from the Assessee.