2025 (4) TMI 604 - AT - Income Tax

Defective Tax Penalty Notice Invalidates Proceedings Under Section 271(1)(c) Due to Lack of Specific Grounds

M/s. Vijay Power Generators Ltd. Versus ITO, Ward 17 (3), New Delhi.

The SC/Tribunal determined that penalty proceedings under Section 271(1)(c) of Income-tax Act were invalid due to a defective notice. The notice failed to ... Penalty imposed u/s 271 (1) (c) - allegation of defective notice - as per AO assessee has furnished inaccurate particulars of income in order to decrease its tax liability - HELD THAT:- AO has not specified the relevant limb for initiation of penalty proceedings in the notice issued u/s 274. When the charge has not been specified in the notice, it is an omnibus notice. In such circumstances, Hon’ble Delhi High Court in the case of PCIT vs. Sahara India Life Insurance Co. Ltd. [2019 (8) TMI 409 - DELHI HIGH COURT] has held that the penalty order passed is liable to be quashed on account of this defect which is fatal. We further note that in the case of Mr. Mohd. Farhan A. Shaikh [2021 (3) TMI 608 - BOMBAY HIGH COURT (LB)] has held that no specification of charge in the penalty notice leads to same become void and penalty on that count is to be deleted - Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe primary legal question considered was whether the penalty proceedings initiated under Section 271(1)(c) of the Income-tax Act, 1961, were valid given the alleged defect in the notice issued to the assessee. The core issues included:Whether the notice issued under Section 274 read with Section 271(1)(c) was defective for failing to specify the charge against the assessee, i.e., whether it was for concealment of income or furnishing inaccurate particulars of income.Whether the absence of a specified charge in the penalty notice invalidates the jurisdiction assumed by the Assessing Officer to levy the penalty.Whether the penalty order should be quashed based on the alleged jurisdictional defect in the notice.ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents:The legal framework revolves around Section 271(1)(c) of the Income-tax Act, which deals with penalties for concealment of income or furnishing inaccurate particulars. Section 274 mandates that the assessee must be informed of the grounds for penalty proceedings through a statutory notice. The court considered precedents such as the Hon'ble Supreme Court decision in CIT vs. SSA Emerald Meadows, and the Delhi High Court's ruling in PCIT vs. Sahara India Life Insurance Co. Ltd., which emphasized the necessity of specifying the charge in the penalty notice.Court's interpretation and reasoning:The Tribunal observed that the notice issued under Section 274 did not specify whether the penalty proceedings were initiated for concealment of income or for furnishing inaccurate particulars of income. This omission was deemed a significant defect, rendering the notice vague and omnibus. The Tribunal relied on the precedent set by the Delhi High Court in Sahara India Life Insurance Co. Ltd., which held that such a defect is fatal to the penalty proceedings.Key evidence and findings:The Tribunal noted that the Assessing Officer failed to specify the relevant limb of Section 271(1)(c) in the penalty notice, which is crucial for the assessee to understand the exact charge and prepare a defense. This lack of specificity was not curable by subsequent mentions in the assessment or penalty orders.Application of law to facts:Applying the legal principles from the cited precedents, the Tribunal concluded that the penalty notice's failure to specify the charge rendered it invalid. The Tribunal emphasized that the statutory requirement to inform the assessee of the specific charge is not a mere procedural formality but a substantive requirement that affects the validity of the penalty proceedings.Treatment of competing arguments:The assessee argued that the penalty notice was defective, citing various judicial decisions supporting their position. The Revenue, on the other hand, contended that the orders of the authorities below were correct. The Tribunal found the assessee's arguments more persuasive, given the clear judicial precedent requiring specificity in penalty notices.Conclusions:The Tribunal concluded that the penalty proceedings were vitiated by the defective notice, which failed to specify the charge. Consequently, the penalty order was quashed, and the appeal was decided in favor of the assessee.SIGNIFICANT HOLDINGSThe Tribunal held that the penalty proceedings under Section 271(1)(c) were invalid due to the defective notice, which did not specify whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. The Tribunal stated:'An omnibus notice suffers from the vice of vagueness.' - Citing the Full Bench of the Bombay High Court in Mr. Mohd. Farhan A. Shaikh vs. ACIT.The core principle established is that the failure to specify the charge in the penalty notice is a fatal defect that invalidates the penalty proceedings. The Tribunal's final determination was to quash the penalty order and allow the appeal filed by the assessee.