Penalty quashed for lack of proper notice in tax case

The tribunal quashed the penalty of Rs.5,19,400/- imposed under Section 271(1)(c) due to jurisdictional invalidity and non-compliance with the requirement to specify the charge in show cause notices. The appeal was allowed, emphasizing the importance of proper notice in penalty proceedings.

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Issues Involved:
1. Validity of Penalty Imposed under Section 271(1)(c) of the Income-tax Act, 1961.
2. Specificity of Show Cause Notices under Section 274 read with Section 271(1)(c).
3. Jurisdictional Validity of Penalty Proceedings.

Summary:

1. Validity of Penalty Imposed under Section 271(1)(c):
The assessee challenged the penalty of Rs.5,19,400/- imposed under Section 271(1)(c) for furnishing inaccurate particulars of income concerning the sale of shares amounting to Rs.20,50,910/-. The penalty was initially upheld by the CIT (Appeals), National Faceless Appeal Centre (NFAC), Delhi, leading to the present appeal before the ITAT Raipur.

2. Specificity of Show Cause Notices:
The assessee contended that the Assessing Officer (AO) issued two "Show Cause" notices under Section 274 read with Section 271(1)(c) on 08.12.2016 and 07.06.2017 without specifying the exact default, i.e., whether it was for "concealment of income" or "furnishing inaccurate particulars of income." This ambiguity deprived the assessee of a fair opportunity to defend itself. The tribunal observed that the AO's failure to strike off the irrelevant default in both notices indicated a lack of application of mind, thereby invalidating the notices.

3. Jurisdictional Validity of Penalty Proceedings:
The tribunal analyzed the jurisdictional validity of the penalty proceedings and concluded that the AO did not validly put the assessee on notice regarding the specific charge. The tribunal emphasized that the AO's use of "OR" between the two defaults in the notices failed to convey the specific charge, thus violating the statutory obligation under Section 274(1) of the Act. The tribunal cited various judicial pronouncements, including the Supreme Court's decision in CIT Vs. SSA's Emerald Meadows, which held that non-specification of the charge in the notice is a fatal defect.

Conclusion:
The tribunal quashed the penalty of Rs.5,19,400/- imposed by the AO under Section 271(1)(c) due to the invalid assumption of jurisdiction and non-compliance with the statutory requirement of specifying the exact charge in the show cause notices. Consequently, the tribunal allowed the appeal of the assessee and refrained from adjudicating the other grounds of appeal related to the merits of the case.

Order Pronounced:
The appeal was allowed, and the order was pronounced in open court on 09th August 2023.

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