Vijay Mohan Harde Vs. ACIT, Ahmednagar - (Income Tax Appellate Tribunal) (17 May 2021)

Where inapplicable portions were not struck off in the penalty notice, the penalty was vitiated

MANU/IP/0075/2021

Direct Taxation

The facts of the case are that the assessee has been the proprietor of Food Land Agro (India) engaged in the business of processing and sale of milk. The return of income was filed declaring total income of Rs. 15,11,719. During the course of assessment proceedings, the AO observed that the assessee had entered into an agreement with Prabhat Diary Pvt. Ltd. for transferring all the assets and liabilities of its business for a total consideration of Rs. 1,36,06,044. The AO observed that the assessee has transferred the entire proprietary concern to Prabhat Diary Pvt. Ltd. and did not disclose the capital gains arising therefrom. Thus, invoking Section 50B of the Act, he made an addition of Rs. 91,43,141. Subsequently, a penalty of Rs. 31,42,000 was imposed on this score by the AO under Section 271(1)(c) of the Income Tax Act, 1961 (IT Act) after issuing notice under Section 274 of the Act. The ld. CIT(A), after elaborately discussing the issue, upheld the penalty. Aggrieved thereby, the assessee has come up in appeal before the Tribunal.

A copy of the notice issued under Section 274 of the IT Act has been placed in the appeal folder, from which it is discernible that the AO did not strike off either of the two limbs viz., concealed the particulars of income or furnished inaccurate particulars of such income, albeit it was a case of furnishing of inaccurate particulars of income. The penalty order also came to be passed by holding that: 'the amount added or disallowed in computing the total income of the assessee as a result thereof shall, for the purposes of clause (c) of this sub- section (1) of Section 271 of IT Act, be deemed to represent the income in respect of which particulars have been concealed or inaccurate particulars have been furnished.'

Recently, the full Bench of Hon'ble Bombay High Court in Mohd. Farhan A. Shaikh Vs. Dy. CIT held that, a defect in notice of not striking the relevant words vitiates the penalty even though the AO had properly recorded the satisfaction for imposition of penalty in the order under Section 143(3) of the Act. In another judgment, the Hon'ble Bombay High Court in Pr. CIT Vs. Golden Peace Hotels and Resorts (P.) Ltd. also took similar view that, where inapplicable portions were not struck off in the penalty notice, the penalty was vitiated. In view of the overwhelming position, it is clear that where the charge is not properly set out in the notice under Section 274 viz., both the limbs stand therein without striking off of the inapplicable limb, but the penalty has been, in fact, levied for one of the two, such a penalty order gets vitiated.

Turning to the facts of extant case, present Tribunal find from the notice under Section 274 of the IT Act that the AO did not strike out one of the two limbs. Not only that, the penalty was also imposed in the same way by referring to both the limbs in the penalty order. As against that, the penalty was leviable only on one limb, namely, furnishing of inaccurate particulars of income. In such a situation, the penalty order gets vitiated. Appeal is allowed.

Tags : PENALTY LEVY NOTICE