Case Law Details
Vaishali Kamlesh Bavishi Vs National Faceless Appeal Centre Centre (NFAC) (ITAT Mumbai)
ITAT Mumbai held that initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act without informing the charges framed for initiation of the same via statutory notice renders the entire proceeding inacceptable.
Facts- On the basis of assessment framed by the AO u/s. 143(3) of the Income Tax Act, 1961 (for short ‘the Act’) making addition of Rs.2,98,741/- being the 25% of the bogus purchases made by the assessee to the tune of Rs.11,94,963/- which was added to the total income of the assessee under section 69C of the Act, penalty proceedings under section 271(1)(c) of the Act were initiated. Declining the contentions raised by the assessee, the AO proceeded to levy the penalty of Rs.77,600/- being 100% of the tax sought to be evaded.
The assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has dismissed the same by way of confirming the penalty. Feeling aggrieved with the impugned order passed by the Ld. CIT(A) the assessee has come up before the Tribunal by way of filing present appeal.
Conclusion- We are of the considered view that since the AO has failed to initiate the penalty proceedings under section 271(1)(c) of the Act by issuing the valid notice, penalty levied by the AO and confirmed by the Ld. CIT(A) is not sustainable in the eyes of law as the assessee has never been informed about the charges framed to initiate the penalty proceedings through statutory notice.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The appellant, Mrs. Vaishali Kamlesh Bavishi (hereinafter referred to as ‘the assessee) by filing the present appeal, sought to set aside the impugned order dated 20.10.2022 passed by the National Faceless Appeal Centre(NFAC) [Commissioner of Income Tax (Appeals), Delhi] (hereinafter referred to as CIT(A)] confirming the penalty levied by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act, 1961 (for short ‘the Act’) qua the assessment year 2009-10 on the grounds inter-alia that :-
“1. On the facts and in the circumstances of the case and in law the CIT(A) was not justified in confirming the penalty of Rs. 77,600/- levied by the Assessing Officer u/s 271(1)(c) of the Income-tax Act, 1961.
2. The appellant submits that there is no concealment of income in as much as the purchases made by the appellant are genuine and it was only to buy peace that the appellant did not file an appeal against the adhoc disallowance of 25% of the alleged purchases treated by the Assessing Officer as no genuine upto some extent.
3. The appellant submits that the adhoc disallowance is a mere hypothecal estimate and not a case of concealment or furnishing of inaccurate particulars.
4. The appellant craves leave to add to, alter or vary the grounds of appeal at or before the hearing of the appeal.”
2. The assessee by moving an application sought to raise the additional ground that :
“On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the penalty of Rs. 77,600/- levied u/s 271(1)(c) of the Income tax Act, 1961 as he has not specified the exact charge for which the penalty was proposed to be levied.”
on the ground that the same is a legal ground which is necessary for adjudication of the issues at hand. Keeping in view the fact that the assessee by way of moving an application sought to raise additional ground which is purely a legal one, necessary to decide the issue at hand, which can be raised at any stage of the proceedings, is allowed.
3. Briefly stated facts necessary for consideration and adjudication of the issues at hand are : on the basis of assessment framed by the AO under section 143(3) of the Income Tax Act, 1961 (for short ‘the Act’) making addition of Rs.2,98,741/- being the 25% of the bogus purchases made by the assessee to the tune of Rs.11,94,963/- which was added to the total income of the assessee under section 69C of the Act, penalty proceedings under section 271(1)(c) of the Act were initiated. Declining the contentions raised by the assessee, the AO proceeded to levy the penalty of Rs.77,600/- being 100% of the tax sought to be evaded.
4. The assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has dismissed the same by way of confirming the penalty. Feeling aggrieved with the impugned order passed by the Ld. CIT(A) the assessee has come up before the Tribunal by way of filing present appeal.
5. We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable
6. Undisputedly the assessee has accepted the addition of 2,98,741/- made by the AO under section 69C of the Act by not filing any appeal. Now the assessee by relying upon the decision rendered by Hon’ble Bombay High Court Full Bench in case of Md. Farhan A Sheikh vs. ACIT (2021) 434 ITR 1(FB-Bombay) contended that on the basis of invalid notice issued by the AO penalty under section 271(1)(c) cannot be levied and sought to delete the same.
7. Before proceeding further we would extract the notice issued by the AO under section 274 read with section 271 of the Act for ready perusal as under:
8. Bare perusal of the notice (supra) issued in this case by the AO goes to prove that the AO at the time of issuing the notice was not satisfied if he was initiating the penalty against the assessee for concealing particulars of his income or for furnishing inaccurate particulars of such income.
9. This issue has been decided by the Hon’ble Bombay High Court in Full Bench Judgment rendered in Md. Farhan A Sheikh (supra) and held that penalty under section 271(1)(c) of the Act is not leviable when invalid notice as in the instant case has been issued to the assessee. The operative part of the order passed by the Hon’ble Bombay High Court is as under:
“180. One course of before us is curing a defect in the notice by referring to the assessment order, which may or not contain reason for the penalty proceedings. The other course of action is the prevention of defect in the notice – and that
7. Sailesh Mehta v. CIT(A) ITA No.2445, 2439, 2444 &2443/Mum/2021 prevention takes just a tick mark. Prudence demands prevention is better than cure.
Answers:
Question No. 1: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Sec. 271 (1)(c), docs a mere defect in the notice – not striking off the irrelevant matter vitiate the penalty proceedings?
181. It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penal ty proceedings against the assessee. But that translates into action only through the statutory notice under Sec. 271(1)(c), r.w.s. 274 of the Act. True, the assessment proceedings form the basis for the penal ty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other’s defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a deferent statutory scheme that remains distinct from the assessment proceedings. Therefore, the assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness.
182. More Particularly, a penal provision, even with civil consequences, must be construed strictly. And ambiguity, if any, must be resolved in the affected assessee ‘s favour.”
10. So following the order passed by the Hon’ble Bombay High Court in case of Md. Farhan A Sheikh (supra) we are of the considered view that since the AO has failed to initiate the penalty proceedings under section 271(1)(c) of the Act by issuing the valid notice, penalty levied by the AO and confirmed by the Ld. CIT(A) is not sustainable in the eyes of law as the assessee has never been informed about the charges framed to initiate the penalty proceedings through statutory notice.
11. Consequently appeal filed by the assessee is hereby allowed and penalty levied by the AO and confirmed by the Ld. CIT(A) is ordered to be deleted.
Order pronounced in the open court on 24.02.2023.
Author Bio
If TDS is paid then No Penalty id levied