Application of correct limb of penalty u/s 271(1)(c) is a question of fact and not a question of law. ITAT dismissed issue raised before it for the first time
ABCAUS Case Law Citation:
ABCAUS 3114 (2019) (08) ITAT
Important case law relied upon by the parties:
Sundaram Finance 403 ITR 407
Manjunatha Cotton & Ginning Factory 359 ITR 565
SSA’s Emerald Meadows
In the instant appeals, the assessee had challenged the order of the CIT(A) in confirming the penalty levied u/s 271 (1) (c) of the Income Tax Act, 1961 (the Act).
While scrutinizing the return of income the Assessing Officer (AO) found that the assessee had shown rental income and claimed deduction u/s 24(a)(b) @ 30% and also claimed interest on housing loan, thus declaring loss under the head “income from house property”.
The Assessing Officer was of the opinion that the assessee had wrongly claimed loss and had shown bogus rental income.
The assessee was asked to explain the rental income and the interest claimed on housing loan. Not convinced with the reply of the assessee the Assessing Officer made addition.
The quarrel travelled up to the Tribunal which dismissed the appeal of the assessee.
The AO initiated penalty proceedings u/s 271 (1) (c) of the Act separately and the assessee was asked to explain why penalty should not be levied on the disallowances confirmed by the CIT(A).
The reply of the assessee did not find any favour with the Assessing Officer who was convinced that the assessee had wrongly claimed deduction u/s. 24 (a) (b) of the Act and u/s 80 C of the Act and proceeded by levying penalty u/s 271(1)(c) of the Act. The Assessee carried the matter before the CIT(A) but without any success.
Before the Tribunal, for the very first time, the assessee questioned the validity of the penalty notice by contending that the Assessing Officer had not specified under which limb of section 271 (1) (c ) of the Act the penalty had been levied by striking off the inapplicable limb.
The Department submitted that the question whether correct limb of u/s. 271 (1) (c) was applied is a question of fact and not a question of law, therefore, the new plea taken by the assessee should not be entertained at this stage.
The Tribunal from the order of the ITAT passed in the quantum proceedings noted that it clearly established that the assessee had claimed the rental income and the interest on housing loan on wrong facts.
On the plea taken for the first time that the penalty notice did not specify under which limb of the section the penalty proceedings have been initiated, the Tribunal opined that this issue was never raised before the first appellate authority and had been raised for the first time before the Tribunal.
The Tribunal expressed agreement with the Revenue in that the question of application of correct limb of penalty is a question of fact and not a question of law.
The Tribunal relied upon the decision of the Hon’ble High Court wherein interalia it was held that even assuming that there was a defect in the notices, it had caused no prejudice to the assessee, which had understood the purport and import of the notices issued under section 274 read with section 271. The assessee had, at no earlier point of time, raised the plea before the authorities that on account of the defect in the notices it was put to prejudice.
The Tribunal noted that in the said decision the Hon’ble High Court while holding the above had considered the decision of the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory and the decision of Hon’ble Supreme Court in the case of SSA’s Emerald Meadows.
The Tribunal also noted that neither the assessee had moved any application for raising any additional ground nor he had been able to bring out any question of law which could be raised before the appellate authority for the first time.
Accordingly, considering the facts of the case in quantum proceedings in the light of the judicial decision the Tribunal dismissed the appeals.
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It is wrong interpretation. The issue that the correct limb in the notice has to be marked is settled by non other than SC. And the decisions of the apex court become law of the land.