ITAT quashes Penalty Notice issued in mechanical manner & standard format without specifying limb in which penalty is levied

The assessee has challenged the order of Ld. CIT(A) confirmed the penalty of Rs. 4,04,350/- as imposed by the AO u/s 271(1)(c ) of the Income Tax Act, 1961 (hereinafter referred to as the Act) by issuing notice u/s 274 r.w.s. 271(1(c) of the Act in a mechanical manner and in standard format as it does not specify the limb on which the penalty was proposed to be levied.

At the outset, the ld counsel for the assessee submitted before the bench that the AO has issued show-cause notice u/s 274 r.w.s. 271(1)(c) of the Act dated 31.03.2015 calling upon the assessee to show cause as to why penalty should not be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income a copy of which is placed on page no. 1 of the PB. The ld counsel Shri S.K. Tulsyan argued that the said notice has been issued in a standard format and in a mechanical manner without application of mind by the AO. The ld counsel argued that the notice has been issued without indicating the limb on which the penalty was proposed to be levied thereby depriving the assessee to reply to the specific charge on which the penalty was levied. In other words, the AO has mentioned both the limbs as contemplated in section 271(1)( c) of the Act which is a substantive defect going to the root of the matter and therefore the penalty notice is bad in law.

ITAT Order:

5. We have heard the rival contentions and perused the material on record including the impugned notice u/s 274 read with Section 271(1)(c ) dated 31.3.2015. We observe that the notice u/s 274 read with Section 271(1)(c ) dated 31.3.2015 was issued in a mechanical manner and in standard format without mentioning one of the two limbs on which the penalty was proposed to be levied. The AO finally imposed penalty u/s 271(1)(c ) of the Act of Rs. 4,04,350/- being 100% of the tax sought to be evaded by the assessee for furnishing of inaccurate particulars and concealment of income. The ld CIT(A) confirmed the order of AO imposing the penalty by holding that the imposition of penalty is imperative once the it is established that assessee has deliberately and consciously furnished in accurate particulars of income. We note that even ld CIT(A) has also failed to appreciate the legal issue and messed up both limbs together and therefore we are not in agreement with the conclusion of the ld CIT(A). We peruse from the notice issued for initiation of penalty proceedings u/s 274 r.w.s. 271(1)( c) of the Act, that even the AO is not certain as to under which limb the penalty was to be levied. Considering these facts of the case ,we are of the view that non-mentioning of relevant limb in the penalty notice is a substantive defect and infirmity which goes to the root of the matter and is not curable a the later stage. The case of the assessee is squarely covered by the decision of the Hon’ble Apex Court case of CIT vs. SSA’s Emerald Meadows (supra). In the said decision , the Hon’ble Court has dismissed the SLP filed by the Revenue by observing that there is no merit in the petition of the revenue upholding the order of Hon’ble High Court wherein the decision of the coordinate division bench of Hon’ble Karnataka High Court in the case of CIT Vs Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565 has been followed. In all the above decision it has been held that non mentioning of relevant limb or non striking off of irrelevant limb in the penalty notice is a substantive defect in the imitation of proceedings itself and the consequent penalty levied on the basis of such defective notice can not be sustained. In view of these facts and circumstances of the case, we are inclined to set aside the order passed by the Ld. CIT(A) and direct the AO to delete the penalty. The ground no. 3 is allowed.

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