2023 (9) TMI 779 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice u/s 274 - non specification of clear charge - valid assumption of jurisdiction by the A.O or not? - HELD THAT - We are of a firm conviction that the very purpose of affording a reasonable opportunity of being heard to an assessee as per the mandate of Sec. 274(1) of the Act would not only be frustrated but would be rendered redundant if he is not conveyed in clear terms the specific default for which penalty under the said statutory provision was sought to be imposed. In our considered view, the indispensable requirement on the part of the A.O to put the assessee to notice as regards the specific charge contemplated under the aforesaid statutory provision, viz. concealment of income or furnishing of inaccurate particulars of income or both of the said defaults is not merely an idle formality but is a statutory obligation cast upon him, which we find had not been discharged in the present case as per the mandate of law. When as per the settled position of law the two defaults, viz. concealment of income and furnishing of inaccurate particulars of income are separate and distinct defaults, therefore, it was incumbent on the part of the A.O to have clearly specified his said intention in the Show cause notice which we find he had failed to do in the case before us. The aforesaid failure of the A.O cannot be merely dubbed as a technical default as the same had clearly divested the assessee of her statutory right of an opportunity of being heard and defend her case. Ashok Sahahakari Sakhar Karkhana Ltd. 2017 (11) TMI 1048 - ITAT PUNE had held that where in a notice issued u/s 274 of the Act the AO had used conjunction or to mention both limbs, i.e, concealment of income or furnishing inaccurate particulars of income and charge for levy of penalty was not explicitly clear from notice, then, the same was to be held as bad in law and penalty was liable to be set aside. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of jurisdiction assumed by the Assessing Officer (AO) for imposing penalty under Section 271(1)(c) of the Income-tax Act, 1961.
2. Adequacy of the Show Cause Notice (SCN) issued under Section 274 read with Section 271(1)(c) of the Income-tax Act, 1961.

Summary:

Issue 1: Validity of Jurisdiction Assumed by the AO
The assessee challenged the jurisdiction assumed by the AO for imposing a penalty under Section 271(1)(c) of the Income-tax Act, 1961. The AO had issued a Show Cause Notice (SCN) under Section 274 read with Section 271(1)(c) on 30.10.2017, but failed to specify the exact default'whether it was for "concealment of income" or "furnishing inaccurate particulars of income." The Tribunal observed that both defaults are distinct and require clear specification. The AO's failure to strike off the irrelevant default in the SCN indicated non-application of mind, thus invalidating the jurisdiction assumed for imposing the penalty.

Issue 2: Adequacy of the Show Cause Notice
The Tribunal noted that the SCN issued by the AO used the conjunction "OR" between the two defaults, which did not clearly convey to the assessee the specific default for which the penalty proceedings were initiated. This ambiguity deprived the assessee of a fair opportunity to defend against the penalty. The Tribunal relied on several judicial pronouncements, including the Supreme Court's judgment in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, which emphasized the necessity of specifying the exact charge in the SCN. The Tribunal concluded that the SCN's failure to specify the default rendered the penalty proceedings invalid.

Conclusion:
The Tribunal quashed the penalty of Rs. 1,90,000/- imposed by the AO under Section 271(1)(c) due to the invalid assumption of jurisdiction and the inadequacy of the SCN. Consequently, the other grounds of appeal raised by the assessee were left open and not adjudicated. The appeal was allowed in favor of the assessee.

Order Pronounced:
The order was pronounced in open court on 14th September 2023.