2022 (10) TMI 1279 - AT - Income Tax

Penalty under Section 271(1)(c) set aside due to defective notice under Section 274 lacking specific charges

ITAT Delhi set aside penalty imposed u/s 271(1)(c) due to defective notice u/s 274. The AO failed to specify the charge or strike off irrelevant portions ... Penalty u/s 271(1)(c) - defective notice u/s 274 - non mentioning of specific charge or non striking off irrelevant portions in the notice issued u/s 274 - HELD THAT:- AO has not specified any limb or charge for which the notice was issued i.e. either for concealment of particulars of income or furnishing of inaccurate particulars of such income. It can be seen from the notice issued u/s 274 read with Section 271(1)(c) of the Act, Assessing Officer did not strike off irrelevant limb in the notice specifying the charge for which notice was issued. As could be seen from case of Mr. Mohd. Farhan A. Shaik [2021 (3) TMI 608 - BOMBAY HIGH COURT (LB)] while dealing with the issue of non-strike off of the irrelevant part in the notice issued u/s.271(l)(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. Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe core legal issue considered by the Tribunal was whether the penalty orders under Section 271(1)(c) of the Income Tax Act, 1961, were sustainable when the notices initiating the penalty proceedings were defective. Specifically, the notices failed to specify the charge against the assessee by not striking off the irrelevant portions, thus not informing the assessee whether the penalty was for concealment of income or furnishing inaccurate particulars of income.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. The procedural requirement under Section 274 mandates that the assessee must be informed of the specific charge through a statutory notice. The Tribunal relied heavily on the precedent set by the Bombay High Court in the case of Mr. Mohd. Farhan A. Shaikh v. ACIT, which emphasized the necessity of specificity in penalty notices to avoid vagueness and ensure the assessee's right to a fair hearing.Court's Interpretation and ReasoningThe Tribunal interpreted that the issuance of an omnibus notice, which failed to specify the precise charge by not striking off the irrelevant portion, rendered the penalty proceedings invalid. The reasoning was grounded in the principle that penalty proceedings, although arising from assessment proceedings, are distinct and must independently comply with statutory requirements. The Tribunal emphasized that ambiguity in the notice violates the principles of natural justice and prejudices the assessee's ability to defend against the penalty.Key Evidence and FindingsThe Tribunal examined the notices issued under Section 274 read with Section 271(1)(c) for the assessment years 2009-10 and 2010-11. It found that the notices did not specify whether the penalty was for concealment of income or for furnishing inaccurate particulars. The Tribunal noted that this defect was not a mere procedural lapse but a substantive error affecting the validity of the penalty proceedings.Application of Law to FactsApplying the legal principles established in the precedent, the Tribunal concluded that the defective notices vitiated the penalty proceedings. The Tribunal highlighted that the statutory notice is the sole mechanism through which the assessee is informed of the penalty grounds, and any ambiguity or vagueness therein is fatal to the proceedings.Treatment of Competing ArgumentsThe Tribunal considered the argument from the Revenue that the participation of the assessee in the penalty proceedings and the existence of reasons in the assessment order mitigated the defect in the notice. However, the Tribunal rejected this argument, affirming that the penalty proceedings are independent and must comply with the statutory requirement of specificity in the notice. The Tribunal relied on the Bombay High Court's decision, which disapproved of using assessment proceedings to cure defects in penalty notices.ConclusionsThe Tribunal concluded that the penalty orders for both assessment years were erroneous due to the defective notices. It held that the failure to strike off the irrelevant portion of the notice and specify the charge rendered the penalty proceedings invalid. Consequently, the Tribunal quashed the penalty orders for the assessment years 2009-10 and 2010-11.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal ReasoningThe Tribunal quoted the Bombay High Court's decision: 'An omnibus notice suffers from the vice of vagueness... A penal provision, even with civil consequences, must be construed strictly. And ambiguity, if any, must be resolved in the affected assessee's favour.'Core Principles EstablishedThe core principle established is that penalty proceedings under Section 271(1)(c) must be based on a specific and clear statutory notice. Any ambiguity or failure to specify the charge in the notice violates principles of natural justice and renders the penalty proceedings invalid.Final Determinations on Each IssueThe Tribunal determined that the penalty orders for both assessment years were unsustainable due to the defective notices. It allowed the assessee's appeals and quashed the penalty orders, reaffirming the necessity for specificity in statutory notices initiating penalty proceedings.