In ITA No.3186/M/2022-ITAT- ITAT deletes penalty levied u/s 271(1)(c) of Income Tax Act as AO failed to initiate penalty proceedings by issuing valid notice and assessee was never informed about framed charges
Accountant Member-Prashant Maharishi & Judicial Member- Kuldip Singh [24-02-2023]

Read Order: Mrs. Vaishali Kamlesh Bavishi Vs. National Faceless Appeal Centre 

Tulip Kanth

Mumbai, April 7, 2023: The Mumbai Bench of the Income Tax Appellate Tribunal has held the penalty levied u/s 271(1)(c) of the Income Tax Act, 1961 to be unsustainable in the eyes of law in case where assessee was never informed about the charges framed to initiate the penalty proceedings through statutory notice.

In this matter before the Accountant Member-Prashant Maharishi & Judicial Member- Kuldip Singh, the appellant-assessee sought to set aside the impugned ordepassed by the National Faceless Appeal Centre(NFAC) (Commissioner of Income Tax (Appeals), Delhi) confirming the penalty levied by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act, 1961.

It was the appellant’s case that  CIT(A) was not justified in confirming the penalty of Rs  77,600 levied by the Assessing Officer u/s 271(1)(c) of the Income-tax Act, 1961. The appellant submitted that there was no concealment of income in as much as the purchases made by the appellant were genuine and it was only to buy peace that the appellant did not file an appeal against the adhoc disallowance of 25% of the alleged purchases treated by the Assessing Officer as no genuine upto some extent.

It was also contended that the CIT(A) erred in confirming the penalty of Rs 77,600 levied u/s 271(1)(c) as he had not specified the exact charge for which the penalty was proposed to be levied. 

On the basis of assessment framed by the AO under section 143(3) making addition of Rs 2,98,741  being the 25% of the bogus purchases made by the assessee to the tune of Rs.11,94,963 which was added to the total income of the assessee under section 69C, penalty proceedings under section 271(1)(c) of the Act were initiated. Declining the contentions raised by the assessee, the AO proceeded to levy the penalty of Rs 77,600 being 100% of the tax sought to be evaded.

The assessee carried the matter before the  CIT(A) by way of filing appeal which has dismissed the same by way of confirming the penalty. Feeling aggrieved, the assessee approached the Tribunal by way of filing the appeal.

Referring to the Notice issued by the AO u/s  274 r/w section 271, the Bench said, “ Bare perusal of the notice (supra) issued in this case by the AO goes to prove that the AO at the time of issuing the notice was not satisfied if he was initiating the penalty against the assessee for concealing particulars of his income or for furnishing inaccurate particulars of such income.”

The Bench placed reliance upon the judgment of the Bombay High Court in Md. Farhan A Sheikh vs. ACIT (2021) 434 ITR 1(FB-Bombay) wherein it was held that penalty under section 271(1)(c) is not leviable when invalid notice has been issued to the assessee.

Hence, following the precedent set in Md. Farhan A Sheikh Case (Supra), the Bench stated, “...we are of the considered view that since the AO has failed to initiate the penalty proceedings under section 271(1)(c) of the Act by issuing the valid notice, penalty levied by the AO and confirmed by the Ld. CIT(A) is not sustainable in the eyes of law as the assessee has never been informed about the charges framed to initiate the penalty proceedings through statutory notice.”

In view of such factual and legal aspects, the Bench allowed the appeal filed by the assessee while deleting the penalty levied by the AO and confirmed by the CIT(A).