Non-mentioning of Specific Limb in Income Tax Notice and Assessment Order by AO: ITAT deletes Penalty u/s 271(1)(c) [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) in a recent decision reaffirmed the need for ensuring clarity and avoiding all sorts of procedural ambiguity while issuing Notices and Assessment Orders under the provisions of the Income Tax Act, 1961.

The Appellant Assessee, Priority Jewels Private Limited was subject to Assessment by the AO under Section 143(3) of the Income Tax Act, 1961 wherein it was alleged by the Department that an amount of Rs.33,10,243/- had been undisclosed by the Assessee as part of their income. The Assessee was further subjected to Penalty proceedings under Section 271(1)(c) of the Act while Notice under Section 274 was served on the Assessee.

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As matters stood, a 100% penalty on the tax sought to be evaded, amounting to Rs.10,74,010/- was levied on the Assessee by the AO. The first Appeal was dismissed by the CIT(A) on 31.07.2018 while upholding the grounds raised by the Assessing Officer.

The present Appeal was filed by the Assessee against the Order passed by the Commissioner of Income Taxes (Appeals) [CIT (A)] - National Faceless Assessment Centre (NFAC). The Assessee raised a number of grounds before the ITAT to substantiate that the Assessment and subsequent Penalty proceedings had been undertaken by the AO in violation of Section 250 of the Income Tax Act, 1961.

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The Assessee asserted that they had not been given ample opportunity to be heard in light of penalty proceedings and levy of penalty. It was further contended by the Assessee that the AO had grossly defaulted in confirming the Penalty Proceedings under Section 271(1)(c) in line with the Bar of Limitation for imposing Penalties under Section 275 of the Act.

It was averred that the Assessee was only provided with a time of seven days to adduce facts before the AO to defend the levy of penalty; the same was deemed to be far too short to provide substantial evidence and thus the notice served under Section 274 of the Act was to be deemed as an invalid notice violating the principles of Natural Justice.

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Reference was made to the ruling in CIT vs. Savani Handling and Transport Company Appeal No.2817/2009 where it was held by the Gujarat High Court that when the estimate of profits made by different authorities vary, the same cannot be considered as a ground for the levy of penalty. A mere variation between the furnished income tax particulars and the assessment conducted by the AO does not warrant penalty under Section 271(1)(c).

Further contentions were raised on similar grounds averring that the Assessee had discharged the primary onus by furnishing reply stating that penalty is not leviable as all the relevant particulars had already been furnished by the Assessee.

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The Mumbai Bench of ITAT comprising B.R. Baskaran, Accountant Member and Anikesh Banerjee, Judicial Member stressed on the lack of the limb of the provision under which the penalty was initiated. Referring to the case of Mohammed Farhan A Shaikh vs DCIT (2021) that every penal provision must be construed strictly and in the case of any ambiguity while interpreting the provision of the Act, then a more liberal approach in favour of the Assessee should be adopted by the Court in the event that the Assessee has discharged all of their duties with regards to the Assessment Proceedings.

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The Bench proceeded to allow the Assessee’s Appeal in respect of the binding judicial precedents set by Higher Courts.

To Read the full text of the Order CLICK HERE

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