Penalty quashed by ITAT due to lack of specificity in Show Cause Notices

The ITAT held that the penalty imposed under Section 271(1)(c) was unsustainable due to the Assessing Officer's failure to specify the exact default in the Show Cause Notices. As a result, the penalty of Rs. 1,53,000/- was quashed, and the appeal of the assessee was allowed. The ITAT did not address other grounds of appeal, as the penalty was overturned on jurisdictional grounds.

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Issues Involved:
1. Validity of the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961.
2. Adequacy and specificity of the "Show Cause" notices issued by the Assessing Officer (A.O).

Summary:

Validity of the Penalty Imposed under Section 271(1)(c):

The assessee challenged the penalty of Rs. 1,53,000/- imposed under Section 271(1)(c) of the Income-tax Act, 1961, for furnishing inaccurate particulars of income. The penalty was based on an addition of Rs. 4,94,743/- towards unaccounted money introduced as long-term capital gain (LTCG) claimed as exempt under Section 10(38) of the Act. The CIT(Appeals) upheld the penalty, which the assessee further contested before the ITAT.

Adequacy and Specificity of the "Show Cause" Notices:

The key contention was that the A.O. issued two "Show Cause" notices (SCNs) dated 30.12.2016 and 22.05.2017, without specifying the exact default'whether it was for "concealment of income" or "furnishing of inaccurate particulars of income." The use of "OR" between the two defaults in the SCNs did not clearly convey the specific charge, leaving the assessee guessing and unable to mount a proper defense.

The ITAT observed that the failure to strike off the irrelevant default in the SCNs indicated non-application of mind by the A.O. This failure to specify the exact charge violated the statutory obligation under Section 274(1) of the Act, thereby invalidating the penalty proceedings.

The ITAT relied on several judicial pronouncements, including decisions from the Hon'ble Supreme Court and various High Courts, which emphasized the necessity of specifying the exact charge in penalty proceedings. These precedents established that non-specific SCNs render penalty proceedings invalid due to lack of proper notice and opportunity for the assessee to defend.

Conclusion:

The ITAT concluded that the penalty imposed under Section 271(1)(c) was unsustainable due to the A.O.'s failure to specify the exact default in the SCNs. Consequently, the penalty of Rs. 1,53,000/- was quashed. The ITAT did not address other grounds of appeal related to the merits of the case, as the penalty was quashed on jurisdictional grounds.

Order:

The appeal of the assessee was allowed, and the penalty imposed by the A.O. was quashed. The order was pronounced in open court on 18th August 2023.

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