2022 (7) TMI 796 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - defective notice - non specification of charge - HELD THAT - Assessing Officer should have specified the particular limb on which the penalty has been initiated for each addition, in order to give an opportunity to the assessee to defend himself for penalty against each of the additions made. Having specified that the Assessing Officer has failed to do so and has, rather, proceeded on issuing a common show cause notice for all the impugned years without striking off the irrelevant portion in the show cause notice, in the light of the decisions relied upon by the Ld.AR in the case of Mohd. Farhan A. Shaikh vs DCIT ( 2021 (3) TMI 608 - BOMBAY HIGH COURT and Dilip N Shroff 2007 (5) TMI 198 - SUPREME COURT both, the jurisdictional High Court as well as the Hon ble Apex Court treats omnibus show-cause 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. In a plethora of judgements pertaining to this issue various courts have consistently reiterated the principle that the assessee must be informed of the grounds on which penalty proceedings are initiated, where statutory notice is a mandatory requirement. Failure to do so will vitiate penalty proceedings in toto. The judgement of the Hon ble jurisdictional Bombay High Court in Mohd. Farhan S. Shaikh (supra) has specified that even a penal provision with civil consequences must be construed strictly and any ambiguity in this must be decided in favour of the assessee. Assessing Officer has issued a vague and defective notice under section 274 r.w.s. 271(1)(c) dated 28/12/2011 resultantly making the penalty proceedings in all the impugned assessment years vitiated and hence, all penalty orders are liable to be quashed. We, therefore, set aside the orders of the authorities below and delete the penalty levied under section 271(1)(c) of the Act, in all the assessment years under consideration. Assessee appeal allowed.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961 based on alleged issuance of bogus bills and involvement in steel markets; Additional ground of appeal regarding show cause notice for penalty; Failure to specify the grounds for penalty initiation in the show cause notice; Legal challenge to the penalty proceedings under section 271(1)(c) based on the defective notice issued by the Assessing Officer.

Analysis:

The appeals were filed against the order passed by the Ld.Commissioner of Income-tax (Appeals) for assessment years 2007-08 and 2001-02 to 2006-07 under section 271(1)(c) of the Income-tax Act, 1961. The main issue involved in these appeals was the levy of penalty under section 271(1)(c) of the Act. The case involved allegations of issuing bogus bills in steel markets and opening bank accounts in the names of dummy persons. A search and seizure action was carried out, resulting in penalty proceedings and a significant penalty amount being levied. The assessee challenged the penalty before the appellate authorities.

During the appellate proceedings, the assessee raised an additional ground of appeal regarding a show cause notice issued by the Assessing Officer for penalty without specifying the applicable charge. The Ld.AR contended that this issue was not raised earlier due to inadvertence and relied on legal precedents allowing additional grounds to be raised during appellate proceedings. The Ld.DR argued that the penalty should be upheld based on the quantum additions and cited relevant case law.

The Tribunal considered the arguments of both parties and observed that the Assessing Officer failed to specify the grounds for penalty initiation in the show cause notice, leading to a vague and defective notice being issued. The Tribunal referred to legal precedents emphasizing the importance of informing the assessee of the grounds for penalty proceedings. It was noted that the penalty orders were vitiated due to the defective notice, and all penalties were liable to be quashed. Consequently, the Tribunal set aside the orders of the lower authorities and deleted the penalties imposed under section 271(1)(c) for all the assessment years in question.

In conclusion, the Tribunal allowed all the appeals of the assessee, highlighting the necessity for proper specification of grounds in penalty initiation notices to ensure a fair opportunity for defense and compliance with legal principles governing penalty proceedings.