Penalty not Leviable when the AO failed to Strike Off the inappropriate portion of the notice: ITAT Hyderabad [Read Order]

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In the case of Sri Nilaya AR Projects Hyderabad v. ITO Hyderabad, the Income Tax Appellate Tribunal, Hyderabad bench held that penalty u/s 271(1)(c) of the Income Tax Act cannot be levied when the AO failed to strike off the inappropriate portion of the notice. The decision was based on the Apex Court decision in National Thermal Power Co., Limited Vs. CIT. while quashing the order of penalty, the division bench noted that the AO did not mention whether the notice is issued for concealment of income or for furnishing of inaccurate particulars of income and therefore, the penalty order is liable to be quashed.

The assessee made investment in land purchase and showed lesser amount in the return. While completing assessment, the AO added difference of actual amount invested and showed in the return were to the taxable income of the assessee. The addition was confirmed by the first appellate authority. Consequently, penalty proceedings u/s 271(1)(c) of the Income Tax Act were initiated against the assessee on the ground that the assessee has concealed the particulars of income while furnishing the return of income.

Before the Tribunal, the assessee raised an additional ground that the initiation of proceedings u/s 271(1)(c) of the Income-tax Act, is not valid as the AO did not strike off the inappropriate portion of the notice. The AO ought to have struck off the inappropriate portion and indicated to the appellant the applicable portion in the notice.

The bench allowed the ground on the basis of the ration laid down by the Apex Court in National Thermal Power Co., Limited Vs. CIT.

The bench noticed the decision of the Apex Court in CIT Vs. SSA’s Emerald Meadows, wherein it was held that notice issued by Assessing Officer u/s 274 read with section 271(1)(c) was bad in law, as it did not specify under which limb of section 271(1)(c) penalty proceedings had been initiated, i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars of income.

“In the case under consideration, on perusal of the show cause notices issued by the Assessing Officer u/s 274 r.w.s. 271 of the IT Act, 1961, dated 31/12/2008 and 24/10/2011 it is seen that the Assessing Officer did not mention whether the notice is issued for concealment of income or for furnishing of inaccurate particulars of income. Therefore, as per the ratio laid down by the Hon’ble Supreme Court in the case of SSA’s Emerald Meadows, the notice issued by the Assessing Officer is not valid and consequently, the order passed u/s 271(1)(c) is also not valid. Hence, we set aside the order of the CIT(A) and quash the order passed by the Assessing Officer u/s 271(1)(c) of the Act. Accordingly, the appeal of the assessee is allowed.”

Read the full text of the order below.

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