2025 (4) TMI 127 - AT - Income Tax

Penalty quashed for concealment charges due to defective show cause notice under Section 271(1)(c)

Shyam Sundar Agrawal. Versus The Income Tax Officer, Ward-3 (3), Raipur (C.G.)

ITAT Raipur quashed penalty u/s 271(1)(c) imposed on assessee for alleged concealment of income regarding unaccounted money claimed as exempt LTCG u/s ... Penalty u/s.271(1)(c) - 'concealment of income' or 'furnishing inaccurate particulars of income' - addition towards unaccounted money introduced by the assessee in his books of accounts in the garb of long term capital gain (LTCG) that was claimed as exempt u/s. 10(38) - as argued no specific default for which penalty u/s.271(1)(c) was sought to be imposed mentioned HELD THAT:- As failure on the part of the A.O to clearly put the assessee to notice as regards the default for which penalty u/s 271(1)(c) was sought to be imposed on him by clearly and explicitly pointing out the specific default in the SCN(s), dated 14.12.2017 and 29.05.2018 he was called upon to explain that as to why penalty u/s.271(1)(c) of the Act may not be imposed upon him had, thus, left the assessee guessing of the default for which he was being proceeded against, and divested him of an opportunity to put forth an explanation before the A.O that no such penalty was called for in his case. We, thus, are of a strong conviction that as the A.O had clearly failed to discharge his statutory obligation of fairly putting the assessee to notice as regards the default for which he was being proceeded against, therefore, the penalty u/s 271(1)(c) imposed by him being in clear violation of the mandate of Sec. 274(1) of the Act cannot be sustained. We, thus, for the aforesaid reasons not being able to persuade ourselves to subscribe to the imposition of penalty by the AO, therefore, set-aside the order of the CIT(A) who had upheld the same. The penalty imposed by the A.O u/s 271(1)(c) is quashed in terms of our aforesaid observations - Appeal of the assessee is allowed. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment revolve around the validity of the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961. The core legal questions include:Whether the penalty imposed under Section 271(1)(c) for 'concealment of income' or 'furnishing inaccurate particulars of income' is valid when the notice issued under Section 274 does not specify the exact charge.Whether the failure to specify the exact default in the notice under Section 274 invalidates the penalty proceedings.Whether the jurisdiction assumed by the Assessing Officer (A.O) for imposing the penalty was valid.ISSUE-WISE DETAILED ANALYSIS1. Validity of Penalty Under Section 271(1)(c)- Relevant Legal Framework and Precedents: Section 271(1)(c) of the Income-tax Act allows for a penalty to be imposed for 'concealment of income' or 'furnishing inaccurate particulars of income.' The notice under Section 274 must specify the exact charge to ensure the assessee is aware of the specific default.- Court's Interpretation and Reasoning: The Tribunal noted that the notices issued on 14.12.2017 and 29.05.2018 used the term 'OR' between the two defaults, which failed to specify the exact charge. This lack of specificity was deemed a failure to provide a clear notice to the assessee, thereby invalidating the penalty proceedings.- Key Evidence and Findings: The Tribunal observed that the A.O did not strike off the irrelevant parts in the notices, which indicated a lack of application of mind and failed to inform the assessee of the specific charge.- Application of Law to Facts: The Tribunal applied the principles from various judicial precedents, including the judgments of the Hon'ble Supreme Court and High Courts, which emphasize the need for clarity in the notice regarding the specific charge.- Treatment of Competing Arguments: The Tribunal considered the arguments from both the assessee and the Departmental Representative. The Department argued that the assessee was given sufficient opportunity, but the Tribunal found the notices themselves were defective.- Conclusions: The Tribunal concluded that the penalty imposed was invalid due to the defective notices, which did not specify the exact default, thus violating the principles of natural justice.2. Jurisdictional Validity of Penalty Imposition- Relevant Legal Framework and Precedents: The jurisdiction to impose a penalty must be based on a valid notice that specifies the exact charge. The penalty proceedings are quasi-criminal in nature, requiring strict adherence to procedural requirements.- Court's Interpretation and Reasoning: The Tribunal found that the failure to specify the exact default in the notices amounted to a lack of jurisdiction to impose the penalty, as the assessee was not properly informed of the charge.- Key Evidence and Findings: The Tribunal relied on the defective notices as evidence of the lack of jurisdiction.- Application of Law to Facts: The Tribunal applied the principles from judicial precedents, which require clear and specific notices for penalty proceedings.- Treatment of Competing Arguments: The Tribunal considered the Department's argument that the assessment order provided sufficient basis for the penalty, but found the notices themselves were insufficient.- Conclusions: The Tribunal concluded that the penalty proceedings were invalid due to the lack of jurisdiction stemming from the defective notices.SIGNIFICANT HOLDINGS- Preserve Verbatim Quotes of Crucial Legal Reasoning: 'The very purpose of affording a reasonable opportunity of being heard to an assessee as per the mandate of Sec. 274(1) of the Act would not only be frustrated, but would be rendered as redundant if he is not conveyed in clear terms the specific default for which penalty under the said statutory provision was sought to be imposed.'- Core Principles Established: The Tribunal emphasized the necessity for clear and specific notices in penalty proceedings under Section 271(1)(c), aligning with the principles of natural justice and procedural fairness.- Final Determinations on Each Issue: The Tribunal quashed the penalty of Rs. 2,80,000 imposed under Section 271(1)(c) due to the defective notices, which failed to specify the exact default, thus invalidating the penalty proceedings.