Failure to clarify as to which limb of Section 271(1)(c) of Income Tax Act attracted in imposition of Penalty: Delhi HC upholds deletion of Penalty [Read Order]

The Delhi High Court has upheld the deletion of penalty on the failure to clarify as to which limb of Section 271(1)(c) of the Income Tax Act attracted the imposition of penalty.

The respondent/assessee, Modi Rubber Ltd had furnished inaccurate particulars of his income in respect of disallowance of various additions made by the AO and, then, while computing the penalty that he imposed on the respondent/assessee, he goes on to say that the respondent/assessee had furnished “inaccurate particulars of income or concealed income”. There was obviously no clarity in the mind of the SO as to which limb of Section 271(1)(c) of the Income Tax Act got attracted in the instant case for initiation, followed by imposition of penalty.

The revenue has filed appeal as to whether ITAT was justified in law in deleting the penalty under Section 271(1 )(c) of the Income Tax Act, 1961, by holding that there was no application of mind in issue of notice proposing levy of penalty due to non-ticking of the relevant clause of ‘concealment of income’ or ‘furnishing of inaccurate particulars of income’; ignoring that such action could not invalidate the notice when the Bombay High Court in CIT v. Smt. Kaushalya has held that mere non striking off specific limb could not by itself invalidate notice issued under Section 274 of the Income Tax Act as the language of the Section does not speak about the issuance of notice.

The Division Bench of Justice Rajiv Shakdher and Justice Girish Kathpalia noted that Section 271(1)(c) of the Income Tax Act, permits the AO to levy penalty, either for concealment of particulars of income or where the assessee furnishes inaccurate particulars of income. There was a third possibility, that was perhaps, the available to the AO to impose penalty on both counts if such facts in a given matter.

A perusal of the notice would show, something which the Tribunal had also recorded, that the AO did not indicate to the respondent/assessee as to whether this was a case of concealment of particulars or furnishing inaccurate particulars or even, as indicated above, the case where both charges were sought to be levelled against the respondent/assessee. The Bench observed that the  penalty order, as a matter of fact, injects greater confusion in this behalf

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