Penalty imposed on the assessee was deleted by the Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) chaired by Anil Chaturvedi (Accountant member) and N.K. Chaudhry (Judicial Member).
The bench observed that the notice given in accordance with section 271(1)(c) of the Income Tax Act of 1961 was stereotyped and hence insufficient to impose a penalty under the same.
Assessee M/s Virtual Software & Training Pvt. Ltd., filed its return of income declared of Rs. 13,32,019 which was selected for scrutiny.
In the proceedings, the Assessing Officer (AO) observed that by virtue of acquisition agreement the Assessee has transferred its business of software development to M/s Suri Capital and leasing Ltd. in lieu of 45 lakh shares of face value of Rs. 10 each.
According to Article 3 of the software business transfer agreement that the assessee provided, the assessee himself acknowledged that it was a slump sale. As a result, the AO performed the assessment required by section 143(3) of the Income Tax Act and regarded the transaction as a slump sale in accordance with Section 50B of Income Tax Act at an income of Rs. 3,15,60,109.
The assessee went for appeal before both the Commissioner of Income Tax (Appeals) [CIT(A)] and the appellate tribunal, however both disposed of the appeals.
On disposal of appeals, the AO in due course of time initiated penalty proceedings under section 271(1)(c) of the Income Tax Act for furnishing of inaccurate particulars of income and consequently issued notice under section 274 of the Income Tax Act and imposed penalty to the tune of Rs. 1,19,85,719/- @ 100% of the tax sought to be evaded on account of slump sale which is declared as undisclosed income.
The tribunal observed the decision of Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar), where the AO proposed to invoke first limb concealment, then the notice has to be appropriately marked.
The Court also held that the standard proforma of notice under section 274 of the Act without striking of the irrelevant clause would lead to an inference of non-application of mind by the AO and levy of penalty would suffer from non-application of mind.
The appellate authority concluded that penalty notice issued in a stereotyped manner without applying mind cannot be considered as valid and it is bad in law. Thus, considering the various decisions of the High Courts, they decided not to levy the penalty.
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