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May 24, 2022

Section 271(1)(c) was revoked since the AO failed to define a specific limb for the imposition of a penalty.

by CA Shivam Jaiswal in Income Tax

Section 271(1)(c) was revoked since the AO failed to define a specific limb for the imposition of a penalty.

Facts and issues of the case

The penalty order passed by the AO is bad both in the eyes of law and on facts. That the Ld. CIT( A) has grossly erred both in  law and on facts in upholding levy of penalty  of  Rs 2,07,200 /- u/ s 271(1)(c) of the Act. The Ld. CIT( A) has erred both on facts & in law in upholding the levy of penalty u/ s 271(1)(c) of the Act without appreciating the fact that there was no concealment or furnishing of inaccurate particulars of income by the appellant  as  contemplated  u/s 271(1)(c) of the Act.1)( c) of the Act on addition sustained on ad-hoc, estimated basis without bringing any material  on record to prove that there was concealment or furnishing of inaccurate particulars of income on the part of appellant.

CIT(A) has erred both on facts & in law in upholding levy of penalty of Rs 2,07,200/- u/ s 271(1)(c) of the Act, without  appreciating  the  fact that the Ld. AO has imposed penalty by charging the appellant as guilty of furnishing inaccurate particulars of income by mechanically invoking provision of Explanation 1 of Section 271(1 )( c) of the Act while the same can be invoked for  the  charge of concealment of income. The  Ld. CIT(A) has erred both on  facts & in law in upholding levy of penalty of Rs 2,07,200/- u/ s 271(1)(c) of the Act, without  appreciating  the  fact that AO explicitly fails to specify in the show cause notice issued u/s 274 r. w. s. 271 of the Act that under which limb of section 271 (1)(c), penalty proceedings has been initiated i.e. either for  concealment  of income or for furnishing of inaccurate particulars of income, which makes the  penalty order  passed without jurisdiction, which is bad in law and liable to be quashed.

The Ld. CIT(A) has erred on facts & in law in justifying levy of penalty by arbitrary  and mechanically applying the  provisions  of  Explanation 5A of Section 271(1)( c) without appreciating the fact that no addition was made on the basis of any money, bullion, jewellery, other valuable article or document etc. found and seized during the search action carried under section 132 of the Act and therefore, provisions of Explanation 5A of Section 271 (1 )( c) are not applicable in the case of the appellant.”

The Assessing Officer made addition on account of agricultural income to the total income. Subsequently, the Tribunal determined agricultural income @ Rs. 10,000/-  per acre. Consequent to the addition, penalty   u/s 271(1)(c)  has been levied by the AO. Court finds that the page no. 2 , the Assessing Officer has also mentioned “since, the assessee has concealed particulars of his income. I am satisfied that this is a fit case for initiating penalty proceedings u/ s 271( 1)( c) of the of the Income Tax Act, 1961 .”

Observation of the case

Karnataka High Court: CIT vs. Manjunatha Cotton and Ginning Factory: 359 ITR 565 held  that  notice  under section 274 should specifically  state  the  grounds mentioned in section 271(1 )(c) of the Act, i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income. Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy requirement of law.

Bombay High Court: Mr. Mohd. Farhan A. Shaikh Vs ACIT Section 271 (1)(c): Penalty-Concealment-Non- striking off of the irrelevant part while issuing notice u/s 271 (1)( c) of the Income Tax Act, order is bad in law. Assessee must be informed of the ground of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness.

The Hon’ ble jurisdictional Delhi High Court in the case of PCIT vs. Sahara India Life Insurance Co.  Ltd.   In ITA No. 475 of 2019, reiterated that notice under section 274 should specifically state the grounds on which penalty was sought to be imposed as the assessee should know the grounds which he has to meet specifically.

Hence, respectfully following the order of the Hon’ ble Jurisdictional High Court, since the AO has not been specified u/ s 274 as to whether penalty is proposed for  alleged ‘concealment of income’ OR ‘ furnishing of inaccurate particulars of such income’, the penalty levied is hereby obliterated.

Conclusion

The appeals of the assessee are allowed by court.

Malook-Nagar-Vs-ACIT-ITAT-Delhi

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