2025 (2) TMI 1426 - AT - Income Tax

Penalty under Section 271(1)(c) challenged for defective statutory notice; deleted because Section 271AAA did not apply

Assessee contested penalty under section 271(1)(c) claiming protection of section 271AAA(3); tribunal held section 271AAA applies only to undisclosed ... Penalty u/s 271(1)(c) - Defective notice u/s 274 - non striking off the irrelevant limb/portions - undisclosed income of ‘specified previous year’ - Assessee submitted that in view of the provisions contained in Section 271AAA(3) of the Act, no penalty under Section 271(1)(c) of the Act could have been levied. HELD THAT:- We reject the contention of the Assessee that no penalty u/s 271(1)(c) could have been levied for the AY 2007-2008 in view of the provisions contained in Section 271AAA(3) of the Act. In the appeal before us pertains to previous year 2006-2007 which does not fall within the above definition of ‘specified previous year’. Section 271AAA(1) applied to undisclosed income of ‘specified previous year’ only, and consequently, Section 271AAA(3) of the Act would also apply only in case of specified previous year. Thus, Section 271AAA(3) has no application to the present case. A perusal of the penalty notice issued u/s 274 read with Section 271(1)(c) of the Act would show that it in an omnibus show-cause notice issued without deleting or striking off the inapplicable part. Thus, the statutory notice issued to the Appellant does not inform the Appellant about the charge against the Appellant – whether penalty u/s 271(1)(c) of the Act is sought to be levied for concealment of particulars of income or furnishing inaccurate particulars of income. There is nothing on record to show that the Assessee was ‘informed of the grounds of the penalty proceedings through statutory notice’. In view of the aforesaid, we find merit in the contention advance on behalf of the Assessee that penalty levied Section 271(1)(c) of the Act cannot be sustained as per the judgment of Mohammed Farhan A Shaikh [2021 (3) TMI 608 - BOMBAY HIGH COURT (LB)] Thus, penal proceedings stand vitiated and accordingly, penalty levied u/s 271(1)(c) of the Act is deleted. Decided in favour of assessee. Issues: (i) Whether Section 271AAA(3) of the Income-tax Act, 1961 precludes levy of penalty under Section 271(1)(c) for the Assessment Year 2007-2008; (ii) Whether the penalty levied under Section 271(1)(c) of the Income-tax Act, 1961 is vitiated by an omnibus notice that did not strike off inapplicable portions.Issue (i): Whether Section 271AAA(3) of the Income-tax Act, 1961 applies to preclude penalty under Section 271(1)(c) for the Assessment Year 2007-2008.Analysis: Section 271AAA and its Explanation (b) apply only to undisclosed income of a 'specified previous year' as defined in Explanation (b). The definition confines application to previous years that either ended before the date of search but whose return-filing period had not expired before the date of search and for which return was not furnished before the date of search, or to the year in which the search was conducted. The Assessment Year under challenge pertains to the previous year 2006-2007 which does not fall within the statutory definition of 'specified previous year' for the search conducted on 10.08.2011; consequently Section 271AAA(1) and (3) are not applicable to that year.Conclusion: Section 271AAA(3) does not apply to preclude levy of penalty under Section 271(1)(c) for the Assessment Year 2007-2008. (Against the Assessee)Issue (ii): Whether the penalty under Section 271(1)(c) is vitiated because the statutory notice under Section 274 read with Section 271(1)(c) was omnibus and did not strike off inapplicable portions.Analysis: The Full Bench decision of the Hon'ble Bombay High Court in Mohammed Farhan A. Shaikh v. DCIT establishes that a penalty notice must inform the assessee of the specific grounds of penalty; an omnibus notice that leaves inapplicable grounds unstruck renders the notice vague and vitiates penalty proceedings. The penalty notice dated 30/03/2013 in this case was an omnibus show-cause notice not striking off irrelevant parts and therefore did not inform the assessee whether the charge was concealment of particulars or furnishing inaccurate particulars. There is no record showing the assessee was informed of the specific grounds through the statutory notice; the assessment order alone cannot cure the defective statutory notice for initiating penalty proceedings.Conclusion: The penalty levied under Section 271(1)(c) of the Income-tax Act, 1961 is vitiated due to the defective omnibus notice and is deleted. (In favour of the Assessee)Final Conclusion: The appeal is allowed for statistical purposes insofar as the penalty under Section 271(1)(c) is deleted; other grounds are dismissed or treated as fructuous as recorded in the order.Ratio Decidendi: A statutory notice under Section 274 read with Section 271(1)(c) must specify and confine the grounds of penalty by striking off inapplicable portions; failure to do so (omnibus/vague notice) vitiates penalty proceedings and mandates deletion of the penalty.