Penalty notice under Section 274 defective due to mismatch between charge and actual penalty imposed

ITAT Mumbai ruled in favor of the assessee in a penalty case under Section 271(1)(c). The court found the penalty notice under Section 274 defective as it charged the assessee with concealment of income particulars, while the Assessment Order and penalty order were based on furnishing inaccurate particulars of income. This discrepancy between the charge in the notice and the actual penalty imposed violated due process requirements established in Mohd. Farhan A Shaikh case. The penalty order was unsustainable due to this procedural defect.

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Issues Involved:
1. Validity of the penalty order under Section 271(1)(c) of the Income Tax Act, 1961.
2. Merits of the penalty levied under Section 271(1)(c) of the Act.

Summary:

Issue 1: Validity of the Penalty Order under Section 271(1)(c)
The Appellant challenged the penalty order dated 29/06/2018, confirmed by the CIT(A) on 17/03/2023, arguing that the Assessing Officer (A.O.) was unsure whether to levy the penalty for "concealment of income" or "furnishing of inaccurate particulars of income." The Appellant contended that this ambiguity renders the penalty order void ab initio. The Tribunal observed that the Assessment Order recorded satisfaction for initiating penalty proceedings for furnishing inaccurate particulars of income, while the notice issued under Section 274 of the Act charged the Appellant with concealment of particulars of income. However, the penalty order ultimately levied the penalty for furnishing inaccurate particulars of income. Citing judicial precedents, including the Full Bench judgment of the Hon'ble Bombay High Court in the case of Mohd. Farhan A Shaikh, the Tribunal held that the penalty order is bad in law due to the discrepancy between the charge in the notice and the penalty order. Consequently, the penalty order dated 29/06/2018, levying a penalty of INR 55,34,03,602/-, was quashed.

Issue 2: Merits of the Penalty Levied under Section 271(1)(c)
Given the Tribunal's decision to quash the penalty order on legal grounds, the contentions regarding the merits of the penalty were rendered academic and were not adjudicated upon. The Tribunal left these contentions open for consideration in any future proceedings.

Conclusion:
The appeal was allowed on the ground that the penalty order was bad in law due to the inconsistency between the charge stated in the notice and the penalty order. The Tribunal quashed the penalty order without addressing the merits of the penalty.

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