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April 5, 2022

Penalty order issued without applying mind in stereotyped manner is invalid

by CA Shivam Jaiswal in Income Tax

Penalty order issued without applying mind in stereotyped manner is invalid

Fact and Issue of the case

The Assessee has preferred the instant appeal against the order dated 20.07.2018 impugned herein passed by the ld. Commissioner of Income tax (Appeals)-9, New Delhi (in short “Ld. Commissioner”) u/s 250 of the Income Tax Act, 1961 (in short “the Act”), whereby the learned Commissioner has affirmed the levy of penalty u/s 271(1)(c) of the Act.

At the outset it was argued by the learned counsel for the assessee that in the instant case the notice issued u/s 271(1)(c) dated 29.12.2016 is vague, having not mentioned any limb of the penalty and, therefore, the penalty is not leviable. The assessee in support of its contention also relied upon various judgments of the Hon‟ble Apex Court and High Courts.

On the contrary the Ld. DR supported the orders passed by the authorities below and submitted that order under challenge does not suffer from any perversity, impropriety and/or illegality and hence needs no interference .

Observation of the Court

Heard the parties and perused the material available on record. The Assessee has challenged the penalty order on various grounds. In the instant case, the AO initiated penalty under section 271(1)(c) of the Act for „concealing/ furnishing of particulars of Income and thereafter issued the notice u/s 274 read with 271(1)(c) of the Act without specifying the limb of the penalty and finally imposed the penalty for concealment by filling of 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 merits of the case.

Hon’ble Apex Court in case of M/s. SSA’s Emerald Meadows, (2016) 73 taxmann.com 248(SC) dismissed the Special Leave Petition filed by the Revenue against the judgment rendered by Hon’ble High Court of Karnataka whereby identical issue was decided in favour of the assessee.

The Tribunal has allowed the appeal filed by the Assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short ‘the Act’) to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income.

The Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar) 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 held that the standard proforma of notice under section 274 of the Act without striking of 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. It is also a well-accepted proposition that the aforesaid two limbs of section 271(1)(c) of the Act carry different meanings. Therefore, it is imperative for the Assessing Officer to specify the relevant limb so as to make the Assessee aware as to what is the charge made against him so that he can respond accordingly.

In the background of the aforesaid legal position and, having regard to the manner in which the Assessing Officer has issued notice dated 29.12.2016 under section 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 cannot 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 as held by the various Court including Apex Court and hence, we have no hesitation to delete the penalty levied by the AO and affirmed by the Ld. Commissioner .

Conclusion

In the result appeal filed by the Assessee stands allowed.

Penalty-order-issued-without-applying-mind-in-stereotyped-manner-is-invalid

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