2019 (4) TMI 826 - AT - Income Tax

Penalty u/s 271(1)(c) - non-striking of irrelevant portion of the notice under section 274 i.e. Concealment of income or furnished inaccurate particulars of income - notice invalid or not? - HELD THAT - Non-striking of the irrelevant column renders the notice issued u/s 271 as invalid. See ONCHADA SREERAM VERSUS INCOME TAX OFFICER, WARD-1 (1) , VISAKHAPATNAM 2017 (11) TMI 1164 - ITAT VISAKHAPATNAM and SMT. BAISETTY REVATHI 2017 (7) TMI 776 - ANDHRA PRADESH HIGH COURT - Decided in favour of assessee.

Issues Involved:
1. Validity of notice under section 274 read with section 271(1)(c) of the Income Tax Act, 1961.
2. Non-striking of irrelevant portion in the penalty notice.
3. Principles of natural justice and the requirement for specific grounds in penalty proceedings.
4. Relevance of precedents and judicial decisions in penalty proceedings.

Issue-wise Detailed Analysis:

1. Validity of notice under section 274 read with section 271(1)(c) of the Income Tax Act, 1961:
The primary issue in this appeal is whether the notice issued by the Assessing Officer (AO) under section 274 read with section 271(1)(c) of the Income Tax Act, 1961, is valid when it does not specifically indicate whether the penalty is for concealment of income or furnishing inaccurate particulars of income. The Tribunal examined the notice and found that it did not strike off the irrelevant portion, making it ambiguous. This ambiguity means the assessee was not clearly informed of the charges against them, which is a requirement for initiating penalty proceedings.

2. Non-striking of irrelevant portion in the penalty notice:
The Tribunal noted that the AO issued a notice with both potential charges—concealment of income and furnishing inaccurate particulars—without specifying which one applied to the assessee. The Tribunal referenced the decision in the case of Konchada Sreeram Vs. ITO, where it was held that such notices are invalid because they do not provide clear grounds for the penalty. The Tribunal emphasized that the AO must be specific about the charge to give the assessee a fair opportunity to defend themselves.

3. Principles of natural justice and the requirement for specific grounds in penalty proceedings:
The Tribunal reiterated that the principles of natural justice require that the specific grounds for penalty must be clearly communicated to the assessee. Citing the jurisdictional High Court's decision in the case of Smt. Baisetty Revathi, the Tribunal highlighted that a vague notice violates these principles. The High Court had ruled that the charge must be unequivocal and unambiguous to allow the assessee to prepare an adequate defense. The Tribunal found that the notice in question did not meet this standard.

4. Relevance of precedents and judicial decisions in penalty proceedings:
The Tribunal referred to several judicial decisions, including those of the jurisdictional High Court and the Supreme Court, to support its findings. It cited the case of SSA’s Emerald Meadows, where the Supreme Court dismissed the SLP, reinforcing that a notice must clearly state the grounds for penalty. The Tribunal also referred to the decisions in the cases of Narayana Reddy Enterprises and Smt. Makina Annapurna, where similar conclusions were reached about the invalidity of vague notices. The Tribunal found that the CIT(A) correctly followed these precedents in holding the penalty order invalid.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to cancel the penalty imposed under section 271(1)(c), finding that the notice issued was invalid due to its ambiguity. The appeal by the Revenue was dismissed, and the cross-objection by the assessee was also dismissed due to inordinate delay. The Tribunal emphasized the importance of clear and specific grounds in penalty notices to comply with the principles of natural justice.

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