2023 (9) TMI 832 - AT - Income Tax

Levying penalty u/s.271(1)(c) - defective notice u/s 274 - sale of shares as voluntarily offered for taxation by the assessee during the course of assessment proceedings - non striking of irrelevant portion on notice - HELD THAT - As recording of satisfaction by AO in relation to any concealment of income or furnishing of inaccurate particulars by the assessee in notice issued u/s 271(1)(c) is the sine qua non for initiation of such proceedings. Further, we find that the ITAT, Pune in 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. As the A.O had clearly failed to discharge his statutory obligation of fairly putting the assessee to notice as regards the defaults for which it was being proceeded against, therefore, the penalty under Sec. 271(1)(c) imposed by him being in clear violation of the mandate of Sec. 274(1) of the Act cannot be sustained - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of Penalty Imposed under Section 271(1)(c) of the Income-tax Act, 1961.
2. Specificity of Show Cause Notices under Section 274 read with Section 271(1)(c).
3. Jurisdictional Validity of Penalty Proceedings.

Summary:

1. Validity of Penalty Imposed under Section 271(1)(c):
The assessee challenged the penalty of Rs.5,19,400/- imposed under Section 271(1)(c) for furnishing inaccurate particulars of income concerning the sale of shares amounting to Rs.20,50,910/-. The penalty was initially upheld by the CIT (Appeals), National Faceless Appeal Centre (NFAC), Delhi, leading to the present appeal before the ITAT Raipur.

2. Specificity of Show Cause Notices:
The assessee contended that the Assessing Officer (AO) issued two "Show Cause" notices under Section 274 read with Section 271(1)(c) on 08.12.2016 and 07.06.2017 without specifying the exact default, i.e., whether it was for "concealment of income" or "furnishing inaccurate particulars of income." This ambiguity deprived the assessee of a fair opportunity to defend itself. The tribunal observed that the AO's failure to strike off the irrelevant default in both notices indicated a lack of application of mind, thereby invalidating the notices.

3. Jurisdictional Validity of Penalty Proceedings:
The tribunal analyzed the jurisdictional validity of the penalty proceedings and concluded that the AO did not validly put the assessee on notice regarding the specific charge. The tribunal emphasized that the AO's use of "OR" between the two defaults in the notices failed to convey the specific charge, thus violating the statutory obligation under Section 274(1) of the Act. The tribunal cited various judicial pronouncements, including the Supreme Court's decision in CIT Vs. SSA's Emerald Meadows, which held that non-specification of the charge in the notice is a fatal defect.

Conclusion:
The tribunal quashed the penalty of Rs.5,19,400/- imposed by the AO under Section 271(1)(c) due to the invalid assumption of jurisdiction and non-compliance with the statutory requirement of specifying the exact charge in the show cause notices. Consequently, the tribunal allowed the appeal of the assessee and refrained from adjudicating the other grounds of appeal related to the merits of the case.

Order Pronounced:
The appeal was allowed, and the order was pronounced in open court on 09th August 2023.