2023 (12) TMI 764 - AT - Income Tax

ITAT Delhi quashes Section 271(1)(c) penalty for defective notice failing to specify concealment or inaccurate particulars charge

The ITAT Delhi allowed the assessee's appeal against penalty under Section 271(1)(c) for undisclosed unsold inventory. Following the Bombay HC Full Bench ... Penalty u/s 271(1)(c) - non specification of clear charge - undisclosed unsold inventory - exact limb of Section 271(1)(c) not assigned - HELD THAT:- As could be seen from the above the Hon'ble Bombay High Court (Full Bench at Goa) in the case of Mr. Mohd. Farhan A. Shaikh v. ACIT [2021 (3) TMI 608 - BOMBAY HIGH COURT] while dealing with the issue of non-strike off of the irrelevant part in the notice issued u/s. 271(1)(c) of the Act, held that assessee must be informed of the grounds of the penalty proceedings only through statutory notice and an omnibus notice suffers from the vice of vagueness. Notice issued by the Assessing Officer was bad in law if it did not specify under which limb of section 271(1)(c) of the Act the penalty proceedings had been initiated i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. Notice u/s. 274 r.w.s. 271(1)(c) of the Act was issued without striking off the irrelevant portion of the limb and failed to intimate the assessee the relevant limb and charge for which the notices were issued. Appeal of the assessee is allowed. Issues involved:The appeal involves issues related to the validity of the penalty order passed under section 271(1)(c) of the Act, specifically focusing on the initiation of penalty proceedings without assigning specific charges and the sufficiency of grounds for penalty under the mentioned section.Validity of Penalty Order:The appellant contended that the penalty order was invalid and bad in law as the penalty proceedings were initiated and levied without assigning specific charges under section 271(1)(c) of the Act. The penalty notice was observed to have been issued mechanically without specifying the exact grounds for penalty. The appellant relied on a decision of the Hon'ble Bombay High Court which emphasized the importance of informing the assessee of the grounds of penalty proceedings through a statutory notice to avoid vagueness.Legal Interpretation and Precedents:The Tribunal referred to a decision of the Hon'ble Bombay High Court (Full Bench at Goa) in a similar case, where it was held that a penalty proceeding must stand on its own and the notice must specify the grounds clearly. The court emphasized that an omnibus notice suffers from vagueness and ambiguity, which is against the principles of natural justice. The Tribunal also cited a case where the Hon'ble jurisdictional High Court upheld the requirement for the notice to specify the limb of section 271(1)(c) under which the penalty proceedings were initiated.Decision and Conclusion:Based on the legal interpretation and precedents, the Tribunal held that the penalty order passed by the Assessing Officer was bad in law due to the lack of specificity in the notice regarding the grounds for penalty. Consequently, the penalty order passed under section 271(1)(c) of the Act for the assessment year in question was quashed. As a result of this decision, the Tribunal allowed the appeal of the assessee, and the other grounds raised by the assessee on merits were not addressed as they became academic following the quashing of the penalty order.Separate Judgement:The judgment was delivered by Shri Challa Nagendra Prasad, Judicial Member, and Shri Pradip Kumar Kedia, Accountant Member, on 14/12/2023.