2021 (12) TMI 1094 - HC - Income Tax

Levy of penalty u/s 271(1)(c) - defective notice - unexplained cash - as argued assessee had offered income in order to buy peace and avoid litigation even though no such income is assessable at the hands of assessee - HELD THAT - Issuance of such show cause notice without specifying as to whether the Assessee had concealed particulars of his income or had furnished inaccurate particulars of the same has resulted in vitiating the show cause notice. Heavy reliance was placed by the learned counsel for the Revenue on the decision in Mak Data Private Limited 2013 (11) TMI 14 - SUPREME COURT to urge that the penalty contemplated by Section 271 (1) (c) of the said Act was in the nature of civil liability and mens rea was not essential therein. The Full Bench having considered these decisions and having answered the question as regards defect in the notice under Section 271(1)(c) of the said Act resulting in vitiating the penalty proceedings, we find ourselves bound by the answers given by the Full Bench. It would not be permissible for us to disregard this aspect and take a different view of the matter. Accordingly substantial question of law no. III is answered by holding that since the show cause notice dated 12.02.2008 does not indicate whether there was concealment of particulars of income or furnishing of incorrect particulars of such income, the same would vitiate the penalty proceedings. Since it has been found that the show cause notice dated 12.02.2008 that was issued to the Assessee was vague and the penalty proceedings initiated on that basis were vitiated, it would not be necessary to answer substantial questions of law as framed at serial nos. I and II. This is for the reason that the said substantial questions pertain to the merits of the adjudication of the proceedings under Section 271(1)(c) - Once it is found that the show cause notice dated 12.02.2008 issued to the Assessee was not in accordance with law, the orders passed thereon would automatic cease to operate. - Decided in favour of assessee.

Summary

Issues:
1. Validity of levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for alleged concealment of income.
2. Validity of penalty imposition when income was offered to avoid litigation despite being non-assessable.
3. Validity of show cause notice for penalty proceedings without specifying concealment or furnishing of inaccurate particulars.

Issue 1: Validity of levy of penalty under Section 271(1)(c) for alleged concealment of income:
The appellant argued that the show cause notice lacked specificity regarding the basis for imposing the penalty, citing the necessity for clarity as per legal precedents. Referring to relevant judgments, the appellant contended that the notice must indicate whether there was concealment of income or furnishing of inaccurate particulars. The appellant emphasized that the absence of such details in the notice rendered the penalty proceedings invalid. On the contrary, the Revenue contended that the satisfaction recorded by the Assistant Commissioner justified the penalty initiation, regardless of the notice's specific language. The court considered the arguments and referred to the Full Bench decision and legal principles, ultimately holding that a vague notice vitiates penalty proceedings, as clarity is crucial in penal provisions.

Issue 2: Validity of penalty imposition when income was offered to avoid litigation despite being non-assessable:
The appellant argued that since the income was offered to buy peace and not assessable, there was no concealment, warranting the penalty to be set aside. However, the Revenue maintained that the penalty was justified due to the alleged concealment of income. The court, after addressing the jurisdictional issue, found the show cause notice vague, thereby annulling the penalty proceedings. Consequently, the court did not delve into the merits of the penalty adjudication, as the flawed notice invalidated the orders passed.

Issue 3: Validity of show cause notice for penalty proceedings without specifying concealment or furnishing of inaccurate particulars:
The court addressed the jurisdictional issue first, emphasizing the importance of clarity in the show cause notice for penalty proceedings. Referring to the Full Bench judgment, the court held that a notice lacking specificity regarding concealment or furnishing inaccurate particulars of income would vitiate the penalty proceedings. By applying legal principles and precedents, the court concluded that the vague notice in this case invalidated the penalty proceedings, rendering the orders passed inoperative.

In conclusion, the High Court of Bombay set aside the impugned order, allowing the Income Tax Appeal due to the show cause notice's lack of clarity, which vitiated the penalty proceedings. The court emphasized the necessity for specificity in notices for penalty imposition under Section 271(1)(c) of the Income Tax Act, 1961, in line with legal principles and precedents.