The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has recently, in an appeal filed before it, held that defect in statutory notice in not striking out of irrelevant ground vitiates penalty proceedings.
The aforesaid observation was made by the Mumbai ITAT, when an appeal was preferred before it by an assessee, challenging the order of the Commissioner of Income Tax (Appeals) (CIT(A)), National Faceless Appeal Centre (NFAC), passed u/s.250 of the Income Tax Act, 1961, pertaining to the Assessment Year (A.Y.) 2010-11.
The solitary issue involved in the assessee’s appeal being the levy of penalty u/s. 271(1)(c) of the Income Tax Act, by the Assessing Officer, which usually is attracted when in the course of any proceedings under the Income Tax Act, the AO or the first appellate authority is satisfied about the concealment of the particulars of an assessee’s income, the same was confirmed by the CIT(A) too, leaving the assessee aggrieved.
The claim of the appellant being that the same is illegal and invalid as the A.O. has failed to specify the limb of section 271(1)(c), under which the penalty was levied, the brief facts of the case were that the assessee was a director in M/s. Damodar Yarn Manufacturing Pvt. Ltd., from where the assessee had received remuneration.
The assessee had filed his return of income dated 26.07.2010, declaring the total income at Rs.19,88,524/- after claiming deduction u/s. 80C and u/s.80D, amounting to Rs.1,00,000/- and Rs.15,000/- respectively, subsequent to which the assessee’s case was selected for scrutiny. Following the same, an assessment order dated 11.01.2013 was passed u/s. 143(3) of the Income Tax Act where the A.O. had made certain additions/disallowances.
The A.O. had also initiated penalty Proceedings, and a penalty amounting to Rs.15,85,836/- was levied vide order dated 29.03.2016. And being aggrieved by the same, the assessee went in appeal before the (CIT (A)), who confirmed the quantum addition as well as the penalty, thus leaving the assessee with the only option of preferring the instant appeal before the Mumbai ITAT.
With Shri Hiro Rai ,the AR for the assessee contending that the penalty notice dated 11.05.2013, did not specify, on what limbs of the provision of section 271(1)(c), the penalty in question was levied, he, by relying upon the decision of the Bombay High Court in the case of Mohd. Farhan A. Shaikh v. ACIT, further stated that the A.O. thus has failed to strike off the irrelevant ground in the penalty notice.
On the other hand, Shri Manoj Sinha the Departmental Representative (DR), controverted the same, thereby relying upon the decision of the lower authorities.
Hearing the opposing contentions of either sides and thereby perusing the materials available on record, the Mumbai ITAT observed:
“We would like to place our reliance on the decision of the Hon’ble Bombay High Court in the case of Mohd. Farhan A. Shaikh, wherein the Hon’ble Jurisdictional High Court has held that the penalty proceeding is vitiated, if there is a lacuna in the notice in not striking out the irrelevant ground by the A.O. It is evident from the said decision that if the printed format of the notice issued to the assessee by the A.O., the inapplicable portion is not struck off as to which limb the penalty is proposed to be imposed then the same is inferred to be non-application of mind by the A.O. which resultantly vitiate the imposition of penalty.”
“Thus, it is clear that the intention of the statutory notice is to make the noticee be conscious of the ground of the notice to present his case pertaining to the said ground.”, the Bench consisting of B. R. Baskaran, the Accountant Member, along with Kavitha Rajagopal, the Judicial Member added.
Finally allowing the assessee’s appeal while deleting the the penalty levied by the A.O., the Mumbai ITAT concluded:
“By respectfully following the above decision, we are of the considered view that the defect in the statutory notice in not striking out of the irrelevant ground vitiates the penalty proceedings for the reason that the assessee has not given sufficient notice for preparing his defences, as to the grounds on which the penalty proceedings have been initiated.”
“From the above observation, we deem it fit and proper to delete the penalty levied by the A.O. on this legal ground.”, the ITAT held.
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