2022 (6) TMI 746 - AT - Income Tax

Penalty u/s 271(1)(c) - Mandation of sufficient compliance of recording of satisfaction in terms Section 271(1)(c) - assessee had made patently wrong claim of depreciation on residential property and patently wrong claim of deduction of interest which was capitalized in precededing assessment year as revenue expenditure - HELD THAT - As in the assessment order and penalty order there is apparent ambiguity as to what was the basic fround for penalty. On other hand it is also established that the notice issued u/s 274 r.w.s. 271(1)(c) of the Act was defective as it was not clear as which limb the penalty was levied. Reliance in this regard can be placed on the judgment of Hon ble Bombay High Court in Commissioner of Income Tax -11 vs. Shri Samson Perinchery 2017 (1) TMI 1292 - BOMBAY HIGH COURT - Thus, the ground raised by the assessee by virtue of Rule 27 of the Rules 1963 are sustained and the notice dated 25.02.2013 is held to be invalid and the penalty proceedings order dated 09.02.2015 is set aside. - Decided in favour of assessee.

Issues:
1. Deletion of penalty under section 271(1)(c) of the Income Tax Act, 1961 by CIT(A).
2. Validity of penalty imposed by the Assessing Officer for inaccurate particulars of income.
3. Justification for deleting penalty on grounds of difference in opinion and previous orders.
4. Legal sustainability of the notice issued by the Assessing Officer for penalty initiation.

Analysis:

Issue 1 - Deletion of Penalty by CIT(A):
The appeal was filed against the order deleting the penalty levied under section 271(1)(c) by the Assessing Officer. The facts revealed that the assessee had claimed depreciation on a dilapidated building and interest expenses, which were subsequently disallowed. The Assessing Officer held the assessee liable for concealment of income and imposed the penalty. However, the CIT(A) set aside the penalty, citing that no penalty can be imposed when facts are fully disclosed, and the assessing officer disallowed claims based on a difference of opinion. The CIT(A) emphasized that penalty cannot be levied on bonafide claims disallowed due to legal interpretations.

Issue 2 - Validity of Penalty Imposed by Assessing Officer:
The Assessing Officer initiated penalty proceedings based on the inaccurate particulars of income furnished by the assessee regarding depreciation and interest expenses. However, the Tribunal found ambiguity in the penalty imposition process. The notice issued by the Assessing Officer lacked specificity on whether the penalty was for concealment of income or inaccurate particulars. The Tribunal concluded that the notice was defective, leading to the invalidity of the penalty proceedings and subsequent order.

Issue 3 - Justification for Deletion of Penalty:
The CIT(A) justified the deletion of the penalty by highlighting the difference in opinion between the appellate authority and the Assessing Officer regarding the disallowance. The CIT(A) considered previous orders in the assessee's case and legal positions to support the decision. The Tribunal upheld the CIT(A)'s decision, emphasizing that the penalty was rightly deleted based on the legal and factual aspects presented.

Issue 4 - Legal Sustainability of Penalty Notice:
The Tribunal scrutinized the penalty notice issued by the Assessing Officer and found discrepancies in specifying the grounds for penalty imposition. The Tribunal referred to relevant judgments and concluded that the defective notice rendered the penalty proceedings invalid. Consequently, the Tribunal dismissed the appeal of the revenue due to the lack of legal sustainability in the penalty notice.

In conclusion, the Tribunal upheld the CIT(A)'s decision to delete the penalty under section 271(1)(c) based on legal interpretations, factual disclosures, and the defective penalty notice issued by the Assessing Officer. The judgment emphasized the importance of clarity and specificity in penalty imposition processes to ensure procedural validity.

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