2021 (8) TMI 1182 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice u/s 274 - non specification of charge - HELD THAT - Bare perusal of the notices issued u/s 274 read with section 271(1)(c) in order to initiate the penalty proceedings against the assessee goes to prove that the AO himself was not aware / sure as to whether he is issuing notice to initiate the penalty proceedings either for concealment of particulars of income or furnishing of inaccurate particulars of such income by the assessee rather issued vague and ambiguous notice by incorporating both the limbs of section 271(1)(c). When the charge is to be framed against any person so as to move the penal provisions against him/her, he/she is required to be specifically made aware of the charges to be leveled against him/her. Following the decisions rendered in the cases of CIT vs. SSA s Emerala Meadows 2016 (8) TMI 1145 - SC ORDER and Pr. CIT vs. Sahara India Life Insurance Company Ltd. 2019 (8) TMI 409 - DELHI HIGH COURT we are of the considered view that when the notice issued by the AO is bad in law being vague and ambiguous having not specified under which limb of section 271(1)(c) of the Act, the penalty proceedings initiated u/s 271(1)(c) are not sustainable. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of penalty orders under section 271(1)(c) of the Income-tax Act, 1961.
2. Specificity and clarity of the notice issued under section 274 read with section 271(1)(c).
3. Application of judicial precedents regarding penalty notices.

Detailed Analysis:

1. Validity of Penalty Orders under Section 271(1)(c):
The assessee, M/s. Hitesh Construction Pvt. Ltd., challenged the penalty orders dated 29.03.2017 for AYs 2008-09 to 2012-13, which were confirmed by the Commissioner of Income-tax (Appeals) on 29.06.2017. The penalties were levied under section 271(1)(c) for various amounts, with the AO alleging concealment of income and furnishing inaccurate particulars. The Tribunal examined whether these penalties were justified and sustainable under the law.

2. Specificity and Clarity of the Notice Issued under Section 274 Read with Section 271(1)(c):
The Tribunal scrutinized the notices issued by the AO under section 274 read with section 271(1)(c), which were found to be vague and ambiguous. The notices did not specify whether the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." This lack of specificity was critical since the assessee must be clearly informed of the charges to prepare an adequate defense. The Tribunal emphasized that the AO must be clear and specific in the notice to ensure the legal validity of the penalty proceedings.

3. Application of Judicial Precedents Regarding Penalty Notices:
The Tribunal referred to several judicial precedents to support its decision:
- CIT vs. SSA’s Emerald Meadows (73 taxmann.com 241): The Karnataka High Court held that a penalty notice under section 274 read with section 271(1)(c) is bad in law if it does not specify the exact charge. The Supreme Court dismissed the Revenue's SLP against this decision, reinforcing the requirement for specificity in penalty notices.
- Pr. CIT vs. Sahara India Life Insurance Company Ltd. (ITA 475/2019): The Delhi High Court followed the Karnataka High Court's decision, reiterating that a penalty notice must clearly state whether the penalty is for concealment of income or furnishing inaccurate particulars.
- Radhika Surgical Pvt. Ltd. vs. ACIT (ITA No. 5090, 5091 & 5092/Del/2017): The Tribunal had previously quashed penalties in similar circumstances for the assessee's group company, citing the same issues with the penalty notices.

Conclusion:
The Tribunal concluded that the penalty notices issued were invalid due to their vagueness and ambiguity. The AO failed to specify the exact charge under section 271(1)(c), rendering the penalty proceedings unsustainable. The Tribunal followed the judicial precedents set by higher courts, which consistently invalidated such vague penalty notices. Consequently, the penalties levied for AYs 2008-09 to 2012-13 were ordered to be deleted, and all appeals filed by the assessee were allowed.

Order Pronounced:
The Tribunal pronounced the order in open court on 25th August 2021, allowing the appeals filed by the assessee and deleting the penalties levied under section 271(1)(c).