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Shubham Developers Promoters & Builders Vs. DCIT, Circle-8 - (Income Tax Appellate Tribunal) (10 Jan 2022)

Where the charge is not properly set out in the notice under Section 274 of IT Act, the penalty order gets vitiated


Direct Taxation

The assessee was subjected to Survey action under Section 133A of the Income-tax Act, 1961 (IT Act), wherein a sum of Rs. 10,86,800 was offered as additional income. The assessee filed return declaring total income of Rs. 38,03,430, including the declared income. The assessment was completed at the declared income only. Thereafter, the AO imposed penalty with reference to the amount offered during the course of Survey and included suo motu by the assessee in total income. The learned CIT(A) sustained the penalty. Aggrieved thereby, the assessee has come up in appeal before the Tribunal.

Recently, the full Bench of Hon'ble Bombay High Court in Mohd. Farhan A. Shaikh Vs. Dy. CIT has considered this very issue. Answering the question in affirmative, the Full Bench held that, a defect in notice of not striking out the irrelevant 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 IT 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 legal 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, the penalty order gets vitiated. In facts of the present case, present Tribunal finds from the notices under Section 274 of the IT Act that, the AO did not strike out the irrelevant limb. The penalty is directed to be deleted. Appeal allowed.


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