2023 (10) TMI 776 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice - non specification of clear charge - non-strike off of the irrelevant part in the notice issued - HELD THAT - As decided in Sahara India Life Insurance Co. Ltd. 2019 (8) TMI 409 - DELHI HIGH COURT the notice issued by the AO was bad in law if it did not specify under which limb of section 271(1)(c) the penalty proceedings had been initiated i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. Ratio of the full bench decision of MR. MOHD. FARHAN A. SHAIKH 2021 (3) TMI 608 - BOMBAY HIGH COURT squarely applies to the facts of the assessee's case as the notice u/s. 274 r.w.s. 271(1)(c) dated 26.12.2016 was issued without striking off the irrelevant portion of the limb and failed to intimate the assessee the relevant limb and charge for which the notices were issued. Decided in favour of assessee.

Summary

Issues:
The judgment involves the issue of sustaining penalty under section 271(1)(c) of the Act based on the notice issued without specifying the exact limb of the section.

Summary:

Issue 1 - Penalty Proceedings Initiated Without Specifying the Charge:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) sustaining the penalty under section 271(1)(c) of the Act. It was observed that the penalty order was bad in law as the penalty proceedings were initiated and levied without specifying the exact limb of Section 271(1)(c) of the Act. The notice issued mechanically without striking off the irrelevant limb and specifying the charge for which the notice was issued rendered the penalty proceedings invalid.

Issue 2 - Precedent from Hon'ble Bombay High Court (Full Bench at Goa):
An identical issue was addressed by the Hon'ble Bombay High Court (Full Bench at Goa) in the case of Mr. Mohd. Farhan A. Shaikh vs. ACIT, where it was emphasized that the assessee must be informed of the grounds of the penalty proceedings only through a statutory notice. The court held that an omnibus notice suffers from the vice of vagueness, supporting the view that penalty proceedings must stand on their own based on a specific charge.

Issue 3 - Effect of Supreme Court's Decision in Dilip N. Shroff:
The judgment referred to the Supreme Court's decision in Dilip N. Shroff, highlighting the significance of precision in notices to avoid ambiguity and ensure fairness and justice. It was noted that non-application of mind in issuing omnibus show-cause notices could lead to prejudice, especially in penal provisions like section 271(1)(c) which require strict construction.

Conclusion:
Based on the above analysis and the precedent set by the Hon'ble Bombay High Court, it was held that the penalty order passed under section 271(1)(c) of the Act was bad in law due to the failure to specify the relevant limb and charge in the notice. Consequently, the penalty order for the assessment year 2014-15 was quashed, and the appeal of the assessee was allowed.