2025 (11) TMI 1748 - AT - Income Tax

Penalty u/s 271(1)(c) quashed as vague notice u/s 274 failed to specify charge of concealment or inaccuracy

ITAT Delhi-AT allowed the assessee's appeal and deleted the penalty imposed u/s 271(1)(c). The Tribunal held that the penalty notice issued u/s 274 was ... Penalty u/s 271(1) - defective notice u/s 274 - non specification of clear charge - as alleged notice had not struck off the inappropriate portion as to whether the assessee had concealed the particulars of income or furnished inaccurate particulars of income - HELD THAT:- This issue is no longer res integra in view of Mohd. Farhan A Shaikh [2021 (3) TMI 608 - BOMBAY HIGH COURT (LB)] omnibus showcause notices as betraying non-application of mind and disapproves of the practice, to be particular, of issuing notices in printed form without deleting or striking off the inapplicable parts of that generic notice. As decided in Sahara India Life Insurance Co. Ltd [2019 (8) TMI 409 - DELHI HIGH COURT] notice issued by the AO would be bad in law if it did not specify which limb of section 271(1)(c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. In the instant case, on perusal of the penalty notice placed on record dated 27.12.2017, it is evident that the ld. AO had not struck off the irrelevant portion thereon mentioning the specific offence committed by the assessee. Penalty deleted. Decided in favour of assessee. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 is vitiated when the notice issued under section 274 read with section 271(1)(c) does not specify the exact charge by failing to strike off the inapplicable portion relating to 'concealment of particulars of income' or 'furnishing of inaccurate particulars of income'. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of penalty under section 271(1)(c) where penalty notice under section 274 is vague / omnibus Legal framework (as discussed) 2.1 The Tribunal considered the requirement under section 274 read with section 271(1)(c) that the assessee must be put to notice of the specific default alleged, i.e., whether penalty is proposed for 'concealment of particulars of income' or for 'furnishing inaccurate particulars of income'. 2.2 The Tribunal relied on the Full Bench decision of the Bombay High Court in 'Mohd. Farhan A. Shaikh v. DCIT', which, after examining the Supreme Court decision in 'Dilip N. Shroff', held that failure to strike off inapplicable portions in a standard penalty notice indicates non-application of mind and constitutes an infraction of a mandatory procedural requirement having penal consequences. 2.3 The Tribunal also relied on the jurisdictional High Court decision in 'PCIT v. Sahara India Life Insurance Co. Ltd.', where it was held that a penalty notice not specifying the particular limb of section 271(1)(c) under which penalty is initiated is bad in law, following 'CIT v. Manjunatha Cotton & Ginning Factory' and 'CIT v. SSA's Emerald Meadows', with the latter affirmed by the Supreme Court. Interpretation and reasoning 2.4 On examining the penalty show-cause notice dated 27.12.2017 issued under section 274 read with section 271(1)(c), the Tribunal found that the Assessing Officer had not struck off the inappropriate portion and had not clearly indicated whether the allegation was of concealment of income or furnishing of inaccurate particulars. 2.5 Applying the Full Bench ruling in 'Mohd. Farhan A. Shaikh', the Tribunal noted that issuance of an omnibus, printed notice without deletion of inapplicable portions betrays non-application of mind and contravenes a mandatory requirement intended to ensure fairness and precision in initiating penal proceedings. 2.6 Referring to the observations that section 271(1)(c) is a mandatory provision with serious consequences and that infringement of a mandatory, justice-oriented procedural safeguard implies prejudice, the Tribunal held that such a defective notice is fatal to the validity of penalty proceedings. 2.7 The Tribunal further observed that the jurisdictional High Court in 'Sahara India Life Insurance Co. Ltd.' had unequivocally approved the principle that a notice under section 274 which does not specify the limb under section 271(1)(c) renders the penalty bad in law, and that no substantial question of law arises against such a view. Conclusions 2.8 The Tribunal held that the penalty notice dated 27.12.2017 was defective and invalid as it failed to specify the precise charge and did not strike off the inapplicable portion. 2.9 Following the binding precedents of the Bombay High Court (Full Bench) and the jurisdictional Delhi High Court, the Tribunal concluded that the penalty proceedings under section 271(1)(c) stood vitiated. 2.10 The Assessing Officer was directed to delete the penalty levied under section 271(1)(c), and the assessee's ground on this issue was allowed. 2.11 In view of the relief granted on this foundational defect in the penalty notice, the Tribunal found it unnecessary to adjudicate the remaining grounds, which were left open.