2024 (11) TMI 811 - AT - Income Tax

Penalty imposed u/s 270A(9) - underreporting and misreporting of income - non specification of clear charge - HELD THAT - Admittedly, in the notices issued u/s 274 r.w.s. 270A of the Act, no specific charge/limb is specified. Misreporting of income and under reporting of income, are having two different connotations and having its own different consequences. We observe that the identical issue was dealt in Jaina Marketing Associates 2024 (3) TMI 1007 - ITAT DELHI wherein as relying on Schneider Electric South East Asia (HQ) 2022 (3) TMI 1295 - DELHI HIGH COURT dealt with a cases wherein the ingredients of sub section 9 of section 270A of the Act, were not specified while imposing the penalty. The Hon ble High Court ultimately affirmed the deletion of the penalty imposed u/s 270A(9). Coming to the instant case, admittedly in the assessment order, the AO initiated the penalty proceedings u/s 270A of the Act without mentioning any sub clause of the section 270A of the Act or not specifying any limb of the penalty proposed to be levied. As the AO issued the vague notice without specifying any particular limb or sub clause for levying the proposed penalty. There is no whisper at all in the notice issued u/s 270A r.w.s. 274 of the Act about misreporting of income whereas the penalty has been levied ultimately for both 'under reporting' and 'misreporting of income' @ 200% in terms of section 270A(9) of the Act, for which show cause notice was never issued to the Assessee. Decided in favour of assessee.

Issues Involved:

1. Jurisdiction of the Assessing Officer (AO).
2. Validity of the notice issued under Section 143(2) of the Income Tax Act.
3. Legitimacy of the penalty imposed under Section 270A for underreporting and misreporting of income.
4. Adequacy of the show cause notice issued under Section 274 read with Section 270A.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer (AO):

The Assessee challenged the jurisdiction of the Income Tax Officer who levied the penalty, arguing that the jurisdiction should have been with the Assistant Commissioner or Deputy Commissioner as per CBDT instructions. The Tribunal considered this issue as a legal matter and decided to address it before delving into the merits of the case. However, the judgment does not provide a detailed analysis or conclusion on this jurisdictional issue, as the decision on the penalty rendered the discussion on jurisdiction moot.

2. Validity of the Notice Issued Under Section 143(2):

The Assessee contended that the assessment and penalty proceedings were invalid due to the lack of a valid notice under Section 143(2) of the Act. The Tribunal did not specifically address the validity of the Section 143(2) notice in its final decision, as it focused on the procedural deficiencies in the penalty proceedings, which were sufficient to dispose of the appeal in favor of the Assessee.

3. Legitimacy of the Penalty Imposed Under Section 270A:

The core issue was the imposition of a penalty for underreporting and misreporting of income under Section 270A. The Assessee argued that the penalty was unjustified as the income was voluntarily corrected and reported. The Tribunal noted that the AO failed to specify whether the penalty was for underreporting or misreporting in the show cause notice, which are distinct offenses with different consequences. Citing precedents, the Tribunal emphasized that the penalty provisions must be strictly interpreted, and any ambiguity in the notice renders the penalty unsustainable.

4. Adequacy of the Show Cause Notice Issued Under Section 274 r.w.s. 270A:

The Tribunal found that the notices issued under Section 274 read with Section 270A were vague, as they did not specify the exact charge against the Assessee-whether it was underreporting or misreporting of income. The Tribunal referenced similar cases where penalties were deleted due to such procedural deficiencies, highlighting that the lack of specificity in the notice violated principles of natural justice. The Tribunal concluded that the penalty could not be sustained due to this procedural lapse and directed its deletion.

Conclusion:

The Tribunal allowed the Assessee's appeal, primarily on the grounds of procedural inadequacies in the penalty proceedings. The decision to delete the penalty was based on the failure of the AO to specify the exact nature of the offense in the penalty notice, aligning with established legal precedents that require clear and specific charges in penalty notices. The Tribunal did not delve into the merits of the Assessee's income reporting or the jurisdictional arguments, as the procedural flaw was sufficient to resolve the appeal.

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