2025 (6) TMI 875 - AT - Income Tax

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

Sundek India Limited Versus Deputy Commissioner Of Income-tax, Circle 4 (1) (1), Ahmedabad

Appellate Tribunal quashed penalty order under Section 271(1)(c) due to defective show-cause notice. The notice failed to specify whether penalty was for ... Penalty proceedings u/s 271(1)(c) - show-cause notice has been issued to the assessee proposing levy of penalty for furnishing ‘inaccurate particulars’ of income and AO levied penalty u/s 271(1)(c) for ‘concealment’ of particulars of income - allegation of non specific charhe mentioned by AO - HELD THAT:- Since the Assessing Officer has not been specified u/s 274 as to whether penalty is proposed for alleged ‘concealment of income’ OR ‘furnishing of inaccurate particulars of such income’, the penalty levied is hereby obliterated. Appeal of the assessee is allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Appellate Tribunal in this appeal are:(a) Whether the initiation of penalty proceedings under Section 271(1)(c) of the Income-tax Act, 1961, for furnishing inaccurate particulars of income, was legally valid and justified on facts.(b) Whether the levy of penalty amounting to Rs. 1,63,19,220/- under Section 271(1)(c) was sustainable in law and on facts.(c) Whether the penalty order passed under Section 271(1)(c) was legally valid despite the absence of the Document Identification Number (DIN) in the body of the order, as mandated by departmental instructions.(d) Whether the lower authorities erred in not properly appreciating the facts, submissions, explanations, and information submitted by the appellant, thus violating the principles of natural justice and rendering the penalty order liable to be quashed.(e) Whether the statutory notice issued under Section 274 adequately specified the grounds for penalty under Section 271(1)(c), i.e., concealment of income or furnishing inaccurate particulars of income, as required by law.2. ISSUE-WISE DETAILED ANALYSISIssue (a) and (b): Validity of initiation and levy of penalty under Section 271(1)(c)The relevant legal framework involves Section 271(1)(c) of the Income-tax Act, 1961, which empowers the Assessing Officer to levy penalty for concealment of income or furnishing inaccurate particulars of income. Section 274 prescribes the procedure for issuing a show-cause notice before imposing such penalty.The Assessing Officer initiated penalty proceedings under Section 271(1)(c)/read with Section 274 on the ground that the assessee furnished inaccurate particulars of income by transferring Rs. 5,02,98,118/- to 'General Reserves', which was held to be taxable business income. The penalty was levied at the minimum rate of 100% of the tax sought to be evaded, amounting to Rs. 1,63,19,220/-.The penalty order stated that the assessee concealed particulars of income to the extent of Rs. 5,02,98,118/-, and that the assessee failed to respond to the show-cause notice issued on 12.02.2016.The Tribunal noted that the Assessing Officer's order found the amount transferred to General Reserves as income chargeable to tax and thus held the assessee liable for penalty for furnishing inaccurate particulars of income.Issue (e): Adequacy of the show-cause notice under Section 274Two High Court precedents were considered:Karnataka High Court in CIT vs. Manjunatha Cotton and Ginning Factory (359 ITR 565) held that the notice under Section 274 must specifically state the grounds under Section 271(1)(c), i.e., whether it is for concealment of income or furnishing incorrect particulars. A generic or omnibus notice listing all grounds does not satisfy the legal requirement.Bombay High Court in Mr. Mohd. Farhan A. Shaikh vs. ACIT held that penalty proceedings must inform the assessee of the exact grounds of penalty through a statutory notice. An omnibus or vague notice is bad in law.The Tribunal observed that the Assessing Officer's notice under Section 274 did not specify whether the penalty was proposed for concealment of income or furnishing inaccurate particulars of income. The notice was a printed form mentioning all grounds without striking off irrelevant parts, thereby lacking clarity and specificity.Application of law to facts and reasoning:The Tribunal emphasized that the statutory requirement of clear and specific notice under Section 274 is mandatory to ensure the assessee is properly informed and able to defend the case. The absence of specification of the exact ground for penalty renders the proceedings invalid.Accordingly, the Tribunal followed the binding precedents and held that since the Assessing Officer failed to specify the ground of penalty in the notice under Section 274, the penalty order under Section 271(1)(c) is liable to be quashed.Issue (c): Absence of DIN in the penalty orderThe assessee contended that the penalty order was bad in law as it did not contain the Document Identification Number (DIN) as mandated by departmental instructions. However, the Tribunal did not elaborate on this issue separately in its reasoning, focusing primarily on the invalidity of the penalty due to defective notice.Issue (d): Alleged breach of natural justice and non-appreciation of factsThe assessee argued that the lower authorities ignored various submissions and explanations, violating principles of natural justice. The Tribunal noted that the assessee failed to respond to the show-cause notice, which was a relevant factor in the penalty proceedings. Since the penalty was quashed on procedural grounds, there was no need for detailed examination of this issue.3. SIGNIFICANT HOLDINGSThe Tribunal held:'Since the Assessing Officer has not specified under Section 274 whether penalty is proposed for alleged 'concealment of income' OR 'furnishing of inaccurate particulars of such income', the penalty levied is hereby obliterated.'The core principle established is the mandatory requirement that a show-cause notice under Section 274 must clearly specify the exact ground for penalty under Section 271(1)(c) to satisfy the statutory mandate and ensure the assessee's right to fair hearing.The Tribunal's final determination was to allow the appeal and quash the penalty order passed under Section 271(1)(c) for AY 2013-14 on the ground of defective notice under Section 274, without delving into the merits of concealment or furnishing inaccurate particulars of income.