2022 (8) TMI 896 - AT - Income Tax

Penalty u/s 271(1)(c) - Non specification of charge - Defective notice u/s 274 - assessee submitted that the Assessing Officer did not specify the charge and the limb under which the penalty is levied - HELD THAT - We hold that the show cause notice, which has not specified the charge and limb under which the penalty is proposed to be levied, is void ab initio and the consequent penalty imposed on the basis of such notice is, therefore, illegal and bad in law and liable to be deleted. Accordingly, the penalty is deleted and the appeal of the assessee is allowed.

Summary

Issues:
1. Validity of penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 without specific charge mentioned in the notice.
2. Compliance with principles of natural justice in penalty proceedings.
3. Admissibility of Additional Ground of Appeal challenging the specificity of the charge in the notice.

Issue 1: Validity of Penalty without Specific Charge:
The case involved an appeal against a penalty of Rs.84,297 imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961. The key contention was that the penalty notice did not specify the charge or limb under which the penalty was being levied. The appellant argued that a vague notice renders any penalty imposed based on it as invalid. The Tribunal highlighted the importance of a specific charge in the notice to enable the assessee to prepare a defense, citing various legal precedents emphasizing the need for clarity in penalty notices. Notably, the Tribunal referred to cases such as 'CIT vs. SSA's Emerald Meadows' and 'Manjunath Cotton & Ginning Factory' to support the requirement of specific grounds in penalty notices. Ultimately, the Tribunal held that the notice lacking specificity was void ab initio, rendering the penalty illegal and ordered its deletion, thereby allowing the appeal.

Issue 2: Compliance with Principles of Natural Justice:
The appellant contended that the penalty proceedings lacked compliance with the principles of natural justice due to the vague charge in the notice. The Assessing Officer's argument that the notice was adequate for the assessee to understand the allegations was countered by the appellant citing the necessity for a clear and specific charge to ensure fairness in the proceedings. The Tribunal supported the appellant's stance, emphasizing that penalty proceedings, being quasi-criminal in nature, must adhere to natural justice principles. Reference to cases like 'Meherjee Cassinath Holdings Pvt. Ltd vs. ACIT' and 'Chandra Prakash Bubna vs. Income Tax Officer' reinforced the significance of clear charges in maintaining procedural fairness. The Tribunal concluded that the lack of specificity in the notice violated natural justice principles, further underscoring the necessity for a clear charge in penalty proceedings.

Issue 3: Admissibility of Additional Ground of Appeal:
The Additional Ground of Appeal challenged the validity of the penalty notice for not specifying the charge against which the penalty was proposed. The Tribunal deemed this ground as a legal issue fundamental to the case, requiring no additional evidence. Consequently, the Additional Ground was admitted for consideration. This decision highlighted the Tribunal's acknowledgment of the critical nature of the issue raised regarding the specificity of the charge in the penalty notice.

In conclusion, the judgment by the Appellate Tribunal ITAT LUCKNOW emphasized the importance of a clear and specific charge in penalty notices under section 271(1)(c) of the Income Tax Act, 1961 to uphold the principles of natural justice and ensure fairness in penalty proceedings. The Tribunal's detailed analysis of legal precedents and principles underscored the necessity for clarity in notices to enable the assessee to respond adequately. Ultimately, the Tribunal ruled in favor of the appellant, deeming the penalty imposed without a specific charge as void ab initio, leading to the deletion of the penalty and allowing the appeal.