2019 (1) TMI 1002 - AT - Income Tax

Penalty u/s 271(1)(c) - non specification of charge - defective notice - Assessing Officer had ticked both the defaults in notice - Held that - Admittedly, AO in the SCN dated 23.12.2011 had earmarked both the defaults viz concealment of particulars of income or furnishing of inaccurate particulars of income . Interestingly, though the AO had ticked both the defaults, however, the usage of the term or used between the said defaults clearly reveals that he had failed to point out the default for which the assessee was called upon to explain as to why penalty u/s 271(1)(c) may not be imposed upon him. In our considered view, on a bare perusal of the SCN dated 23/12/2011, it can safely be gathered that the Assessing Officer himself was not aware as to for what default the assessee was being put to notice and therein called upon to explain as to why penalty may not be imposed upon him - failure to specify the charge in the Show cause notice clearly reflects the non application of mind by the A.O, and would resultantly render the order passed under Sec. 271(1)(c) in the backdrop of the said serious infirmity as invalid and void ab initio. - Decided in favour of assessee.

Issues Involved:
1. Validity of the penalty order under Section 271(1)(c) of the Income Tax Act, 1961.
2. Alleged violation of principles of natural justice.
3. Specificity and clarity in the Show Cause Notice (SCN) regarding the default for which penalty was imposed.

Issue-wise Detailed Analysis:

1. Validity of the penalty order under Section 271(1)(c) of the Income Tax Act, 1961:
The assessee filed a return of income for Assessment Year 2009-10, which was later scrutinized, leading to the assessment of an income significantly higher than declared. The Assessing Officer (AO) imposed a penalty under Section 271(1)(c) for "concealing the particulars of income or filing inaccurate particulars of income." The CIT(A) upheld this penalty. However, the ITAT found that the AO did not specify the exact default for which the penalty was imposed, thus failing to meet the statutory requirements. The ITAT concluded that the penalty order was invalid and void ab initio due to this lack of specificity.

2. Alleged violation of principles of natural justice:
The assessee argued that the penalty order was premature and violated principles of natural justice, as the AO did not wait for the decision of the ITAT in the quantum appeal. The ITAT agreed, noting that the AO proceeded with the penalty without providing a clear and specific notice of the default. This failure to provide a clear notice deprived the assessee of a fair opportunity to defend against the penalty, thus violating the principles of natural justice.

3. Specificity and clarity in the Show Cause Notice (SCN) regarding the default for which penalty was imposed:
The ITAT observed that the SCN issued by the AO was ambiguous, as it ticked both defaults—"concealment of particulars of income" and "furnishing of inaccurate particulars of income." The ITAT emphasized that these are distinct defaults and the AO must clearly specify which one applies. The failure to do so indicated a lack of application of mind and rendered the penalty proceedings invalid. The ITAT cited judicial precedents, including judgments from the Supreme Court and High Courts, to support this view, highlighting that non-specific SCNs violate statutory obligations and principles of natural justice.

Conclusion:
The ITAT quashed the penalty of ?2,75,275 imposed under Section 271(1)(c) due to the AO's failure to specify the default and provide a clear notice, thus violating statutory requirements and principles of natural justice. The appeal of the assessee was allowed, and the penalty order was set aside.

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