2025 (3) TMI 1159 - AT - Income Tax

Penalty under section 271(1)(c) quashed due to defective notice failing to specify concealment or inaccurate particulars charges

ITAT Delhi ruled that penalty under section 271(1)(c) was not sustainable due to defective notice. The penalty notice failed to specify which limb of ... Penalty u/s 271(1)(c) - defective notice - non specification of clear charge - Non mentioning under which limb of section 271(1)(c) the penalty is being initiated - HELD THAT:- We are of the opinion that the assessee has not been called upon to explain if he has concealed the particulars of income or furnished inaccurate particulars of such income. In such a situation the decision of Manjunatha Cotton and Ginning Factory & Ors. [2013 (7) TMI 620 - KARNATAKA HIGH COURT] is illuminating. We find ourselves as having a considered view that when the assessee has not been specifically made aware of the charges leveled against him as to whether there is a concealment of income or furnishing of inaccurate particulars of income on his part, the penalty u/s 271(1)(c) is not sustainable. Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe primary issue considered in this judgment was whether the penalty of Rs. 12,36,814/- levied under Section 271(1)(c) of the Income-tax Act, 1961, was valid. The specific legal questions included:Whether the penalty notice issued under Section 271(1)(c) was defective due to lack of specificity regarding the charge of either 'concealment of income' or 'furnishing inaccurate particulars of income.'Whether the principles of natural justice were violated due to the lack of specific charges in the penalty notice.Whether the penalty proceedings could be sustained when the additions to income were confirmed during assessment but were based on estimations and presumptions.ISSUE-WISE DETAILED ANALYSIS1. Validity of Penalty Notice under Section 271(1)(c)Relevant Legal Framework and Precedents: Section 271(1)(c) of the Income-tax Act pertains to penalties for concealment of income or furnishing inaccurate particulars. The legal requirement is that the notice must specify the exact charge to allow the assessee to respond adequately. The Court referenced several precedents, including CIT vs. Manjunatha Cotton and Ginning Factory and SSA's Emerald Meadows, which emphasized that a penalty notice must clearly state whether it is for concealment or inaccurate particulars.Court's Interpretation and Reasoning: The Court found that the penalty notice was defective as it did not specify which limb of Section 271(1)(c) was being invoked. The notice failed to inform the assessee whether the penalty was for 'concealment of income' or 'furnishing inaccurate particulars,' thus violating principles of natural justice.Key Evidence and Findings: The penalty order mentioned 'concealment of income by furnishing inaccurate particulars,' but the notice did not specify this charge. The Court noted that the Assessing Officer's satisfaction for initiating penalty proceedings was not clearly recorded.Application of Law to Facts: The Court applied the principles from the cited precedents, concluding that the lack of specificity in the penalty notice rendered it invalid. The requirement for specificity is crucial for upholding natural justice.Treatment of Competing Arguments: The assessee argued that the penalty notice was invalid due to its lack of specificity, supported by precedents. The Department contended that the notice was adequate as it was based on the assessment order. The Court sided with the assessee.Conclusions: The Court concluded that the penalty notice was defective and thus invalid. Consequently, the penalty could not be sustained.2. Penalty Proceedings and Assessment ProceedingsRelevant Legal Framework and Precedents: The Court reiterated the principle that penalty proceedings are distinct from assessment proceedings, as established in Manjunatha Cotton and Ginning Factory and other cases.Court's Interpretation and Reasoning: The Court emphasized that confirmation of additions in assessment proceedings does not automatically justify penalties. The Assessing Officer must independently establish concealment or inaccurate particulars for penalties.Key Evidence and Findings: The additions were based on estimations and the absence of documentation for claimed expenses. However, this alone was insufficient for penalty without clear evidence of concealment or inaccuracy.Application of Law to Facts: The Court applied the principle that penalties require independent justification beyond assessment findings. The lack of clear evidence of concealment or inaccurate particulars meant penalties were unwarranted.Treatment of Competing Arguments: The Department's reliance on assessment findings was insufficient. The Court required a separate basis for penalties, which was lacking.Conclusions: The Court concluded that penalties could not be sustained solely on assessment findings without independent evidence of concealment or inaccuracy.SIGNIFICANT HOLDINGSThe Court held that the penalty notice under Section 271(1)(c) was invalid due to lack of specificity, violating principles of natural justice. This defect rendered the penalty unsustainable. The Court emphasized the independence of penalty proceedings from assessment proceedings, requiring clear evidence of concealment or inaccurate particulars for penalties. The final determination was to delete the penalty of Rs. 12,36,814/-, allowing the assessee's appeal.