2024 (2) TMI 270 - AT - Income Tax

Penalty u/s 271(1)(c) - addition sustained purely on an adhoc estimate basis - allegation of defective notice u/s 274 - non specification of clear charge/ non striking off inapplicable part - HELD THAT - The full Bench in the case Mohd. Farhan A Shaikh Vs. DCIT 2021 (3) TMI 608 - BOMBAY HIGH COURT (LB) has held that a mere defect in the notice - not striking off the irrelevant matter, would vitiate the penalty proceedings. A perusal of the penalty notice issued u/s 274 read with 271 of the Act would show that the notices are in the nature of an omnibus show cause notice issued without deleting or striking off the inapplicable part. Same is the case with the penalty order passed under Section 271(1)(c) of the Act, as it also does not state under which limb of Section 271(1)(c) of the Act penalty has been levied. Thus penalty deleted - Decided in favour of assessee.

Summary

Issues Involved:
The appeal challenges the order of the Ld. Commissioner of Income Tax (Appeals)-47, Mumbai, regarding the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for the Assessment Year 2011-12.

Levy of Penalty:
The Appellant contested the penalty of INR 4,54,486/- imposed by the Assessing Officer under Section 271(1)(c) of the Act, which was upheld by the CIT(A), leading to the current appeal. The Appellant argued that the penalty notice was defective as it did not specify the grounds for penalty under Section 271(1)(c) and failed to strike out irrelevant portions, violating principles of natural justice. The Appellant also contended that the addition leading to the penalty was based on an adhoc estimate and hence, no penalty should be levied. The Appellant further requested a refund of excess fees paid for the appeal.

Background and Proceedings:
For the Assessment Year 2011-12, an assessment was made on the Appellant with an income of INR 1,29,76,272/- after adding INR 22,34,445/-, representing 5% of alleged bogus purchases. The CIT(A) later restricted the addition to 3% of the alleged bogus purchases. Subsequently, the Assessing Officer initiated penalty proceedings under Section 271(1)(c) and levied a penalty of INR 4,54,486/-. The Appellant's appeal to the CIT(A) was dismissed, leading to the current appeal.

Judgment and Ruling:
During the hearing, the Appellant cited a judgment of the Full Bench of the Bombay High Court, asserting that a defect in the penalty notice, such as not striking off irrelevant parts, would vitiate the penalty proceedings. The Tribunal observed that both the penalty notice and order did not specify the grounds for the penalty under Section 271(1)(c) and were issued in an omnibus manner. Citing the precedent, the Tribunal ruled in favor of the Appellant, deleting the penalty of INR 4,54,486/- levied under Section 271(1)(c) of the Act. Consequently, the appeal was allowed, with Ground No. 3 in favor of the Appellant and the other grounds dismissed as infructuous.

Conclusion:
The Tribunal allowed the appeal, setting aside the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, based on the defect in the penalty notice and order. The judgment emphasized the importance of specifying the grounds for penalty and adhering to principles of natural justice in penalty proceedings.