2024 (6) TMI 1444 - AT - Income Tax

Penalty under Section 271(1)(c) quashed for defective notice failing to specify concealment or inaccurate particulars charge

Lyka Labs Limited Versus DCIT-2 (2) (1), Mumbai

ITAT Mumbai quashed penalty u/s 271(1)(c) due to defective notice. The penalty order failed to specify whether it was levied for concealment of income or ... Penalty u/s 271(1)(c) - Defective notice - non specification of whether the penalty has been levied for concealment of income or for furnishing inaccurate particulars of income - HELD THAT:- Issue is squarely covered by the decision of Mohd. Farhan A. Shaikh [2021 (3) TMI 608 - BOMBAY HIGH COURT (LB)] Accordingly, the penalty order passed under section 271(1)(c) of the Act for the assessment year 2010-11 is quashed. ISSUES PRESENTED and CONSIDEREDThe core issue presented and considered in this judgment is whether the penalty levied under section 271(1)(c) of the Income Tax Act, 1961, was valid given the alleged defect in the penalty notice issued under section 274 read with section 271(1)(c). Specifically, the issue revolves around whether the failure to specify the charge of either 'concealment of income' or 'furnishing inaccurate particulars of income' in the penalty notice invalidates the penalty proceedings.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework involves section 271(1)(c) of the Income Tax Act, which deals with the imposition of penalties for concealment of income or furnishing inaccurate particulars of income. The proceedings under section 274 require a clear indication of the charge against the assessee. The precedent set by the Larger Bench of the Hon'ble Jurisdictional High Court in Mohd. Farhan A. Shaikh v/s CIT establishes that a defect in the notice, where the relevant charge is not specified, vitiates the penalty proceedings.Court's Interpretation and ReasoningThe Tribunal observed that the penalty notice issued to the assessee did not specify whether the penalty was for concealment of income or for furnishing inaccurate particulars. This lack of specificity was deemed a critical defect. The Tribunal relied on the decision in Mohd. Farhan A. Shaikh, wherein it was held that such a defect renders the penalty proceedings invalid. The Tribunal also considered the decision in Veena Estate (P) Ltd., which was distinguished on factual grounds as it involved a different context where the issue was raised much later in the proceedings.Key Evidence and FindingsThe Tribunal noted that the penalty notice did not strike off the irrelevant charge, failing to inform the assessee of the specific contravention. The assessee had consistently raised this issue from the first round of appellate proceedings, indicating that the defect was not a new argument introduced at a later stage. The Tribunal found that the learned CIT(A) did not address this issue adequately in the first round of appeals.Application of Law to FactsApplying the legal principles from Mohd. Farhan A. Shaikh, the Tribunal concluded that the penalty orders for the assessment years in question were vitiated due to the defective notice. The Tribunal emphasized that the defect was identified and contested by the assessee from the outset, making the situation distinct from the Veena Estate (P) Ltd. case.Treatment of Competing ArgumentsThe Tribunal considered the arguments from both the assessee and the Revenue. While the Revenue relied on the decision in Veena Estate (P) Ltd., the Tribunal found this case factually distinguishable. The Tribunal gave weight to the consistent challenge by the assessee regarding the notice defect, which was supported by the precedent in Mohd. Farhan A. Shaikh.ConclusionsThe Tribunal concluded that the penalty orders for the assessment years 2010-11, 2011-12, and 2014-15 should be quashed due to the defective notice, following the legal precedent established by the Larger Bench of the Hon'ble Jurisdictional High Court in Mohd. Farhan A. Shaikh.SIGNIFICANT HOLDINGSThe Tribunal held that the defect in the penalty notice, where the relevant charge was not specified, invalidates the penalty proceedings. This holding is consistent with the decision in Mohd. Farhan A. Shaikh, which was applied to quash the penalty orders for the relevant assessment years.Core Principles EstablishedThe judgment reinforces the principle that a penalty notice under section 274 read with section 271(1)(c) must clearly specify the charge against the assessee. Failure to do so constitutes a procedural defect that vitiates the penalty proceedings.Final Determinations on Each IssueThe Tribunal determined that the penalty orders for the assessment years 2010-11, 2011-12, and 2014-15 were invalid due to the defective penalty notice. Consequently, the appeals by the assessee were allowed, and the penalty orders were quashed.