2023 (9) TMI 499 - HC - Income Tax

Penalty u/s 271(1)(c) - defective notice - not striking off irrelevant matter - Whether mere defect would vitiate penalty proceedings? - HELD THAT - As if one of the irrelevant matters is not struck off, it would mean that AO himself was not sure while issuing the show-cause notice whether he had proceeded on the basis that assessee had concealed his income or he had furnished inaccurate particulars. If without being sure as to what was the basis on which he was planning to impose the penalty on assessee, such a notice, in our view, would indicate non-application of mind and the notice would be not valid. See M/S. GANGA IRON STEEL TRADING CO., NAGPUR. case 2021 (12) TMI 1094 - BOMBAY HIGH COURT - Decided in favour of assessee.

Summary

Issues involved:
The judgment deals with the issue of imposing penalty under Section 271(1)(c) of the Income Tax Act for furnishing inaccurate particulars of income and concealment of income. The key questions of law raised include: whether the ITAT was justified in deleting the penalty without clear adjudication on merits, whether the exact charge for penalty was unclear, and whether the penalty was correctly deleted despite false claims made by the assessee.

Comprehensive details:

Issue A:
The appellant challenged the ITAT's order deleting a penalty of Rs. 3,11,37,351 imposed under Section 271(1)(c) for inaccurate income particulars and concealment. The ITAT found fault with the AO for lack of clarity on the exact charge for the penalty, citing non-application of mind. Reference was made to the Dilip N. Shroff case to support this view.

Issue B:
The ITAT's decision was based on the premise that the AO did not specify the exact charge for the penalty, leading to ambiguity. The appellant contended that the assessee never raised this issue before the AO. The judgment highlighted the need for clarity in penalty proceedings, as established in previous court rulings.

Issue C:
The ITAT's deletion of the penalty was questioned concerning the assessee's false claim, which was withdrawn only after objection by the AO. The judgment emphasized the importance of assessing the validity of penalties based on accurate and truthful information provided by the assessee.

Issue D:
The ITAT's decision to delete the penalty was based on the lack of clarity regarding the exact charge for which the penalty was imposed. The judgment noted that the AO had levied the penalty for both furnishing inaccurate particulars of income and concealment of income. The court referred to the assessment and penalty orders under Sections 143(3) and 271(1)(c) to support this finding.

The judgment highlighted the significance of providing clear and specific grounds for imposing penalties under Section 271(1)(c) to ensure fairness and adherence to natural justice principles. It referenced previous cases to establish the need for precision in penalty proceedings and the consequences of issuing vague notices. The court emphasized that non-application of mind by the AO in determining the basis for imposing penalties could render the notice invalid. The decision was supported by a similar view taken by a Co-ordinate Bench of the Court in a related case.

In conclusion, the appeal challenging the ITAT's order deleting the penalty was dismissed, affirming the decision based on the principles of clarity, natural justice, and precision in penalty proceedings.