2023 (12) TMI 766 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice u/s 274 - non strike of twin charges - as argued AO has not mentioned the specific limb in the show cause notice issued u/s 274 as to whether penalty is proposed to be levied for concealment of income or furnishing inaccurate particulars of income - HELD THAT - From the perusal of the notice issued u/s 274 r/w section 271(1)(c) of the Act, furnished during the hearing, we find that the AO did not strike off any of the twin charges i.e., concealment of particulars of income or furnishing of inaccurate particulars of income. The case of the assessee is squarely covered by the decision of the Hon'ble Jurisdictional High Court in Mohd. Farhan A. Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT (LB) wherein the Larger Bench of the Hon ble Court has held that the defect in notice by not striking off the irrelevant matter would vitiate the penalty proceedings. Accordingly, penalty order passed under section 271(1)(c) of the Act is quashed. Assessee appeal allowed.

Summary

Issues involved:
The appeal challenging the penalty order under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2010-11.

Grounds raised by the assessee:
1. The CIT(A) erred in sustaining the penalty.
2. The AO did not specify the basis for the penalty in the show cause notice.
3. The penalty was levied for furnishing inaccurate particulars of income.
4. No penalty should be levied where addition is made on the basis of income estimation.
5. The AO did not strike off any of the twin charges in the notice.

Detailed Judgment:
The assessee, engaged in civil and interior work, filed its return of income declaring a total income. A survey revealed bogus purchases, leading to additions in the total income. Subsequently, a penalty was imposed under section 271(1)(c) of the Act. The CIT(A) upheld the penalty, prompting the appeal.

During the hearing, the AR argued that the penalty lacked specificity in the head under which it was levied. The AO had not clearly stated whether the penalty was for concealment of income or furnishing inaccurate particulars. The DR supported the lower authorities' decision.

Upon review, it was observed that the penalty notice did not specify the basis for the penalty. Citing a relevant court decision, it was held that failure to strike off irrelevant matters in the notice would invalidate the penalty proceedings. Consequently, the penalty order was quashed, and the appeal by the assessee was allowed.

In conclusion, the penalty order under section 271(1)(c) of the Act was set aside based on the lack of specificity in the penalty notice, as per the decision of the Jurisdictional High Court.