2024 (8) TMI 1531 - AT - Income Tax

Penalty u/s 271 (1) (c) - Allegation of defective notice - non specification of clear charge - HELD THAT - We observe from the notices above that the limb on which the penalty has been imposed is not specified. The inappropriate portion of the notice has not been struck off. It is discernible that the AO had not striked off either of the two limbs i.e. concealment of the particulars of income; and furnishing of inaccurate particulars. As in Mohd. Farhan A. Shaik 2021 (3) TMI 608 - BOMBAY HIGH COURT (LB) considered this very issue. Answering the question in affirmative the full bench held that a defect in notice of not striking the inappropriate words vitiates the penalty even though the AO had properly recorded the satisfaction for imposition of penalty in his order u/s 143 (3) of the Act. The Hon ble Karnataka High Court in SSA Emeralds Meadows 2016 (8) TMI 1145 - SC ORDER also echoed the view that if the charge of penalty is not specific in the notice issued to the assessee u/s 274 r.w.s.271 (1) (c) meaning thereby if such notice is ambiguous as to whether penalty is levied for concealment of income or for providing of inaccurate particulars of income then such notice is void ab initio and bad in law. As relying on Manjunatha Cotton Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT wherein the court had enshrined that levy of penalty is altogether different from assessment procedures. The penalty cannot be levied in a routine manner. The principles of natural justice must be followed wherein the notice served on the assessee must clearly and unambiguously specify the charge on which the Department proposes to levy the penalty so that the assessee can be ready with his defence and prepare his case and submissions accordingly. Decided in favour of assessee.

The issues presented and considered in the legal judgment are as follows:1. Whether the imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 is valid when the penalty notice does not specify the limb on which the penalty has been imposed, i.e., concealment of income particulars or furnishing inaccurate particulars.Issue-wise detailed analysis:The relevant legal framework and precedents cited in the judgment include judgments from the Hon'ble Bombay High Court and the Hon'ble Karnataka High Court. The Full bench of the Hon'ble Bombay High Court in Mohd. Farhan A. Shaik vs. Dy. CIT held that a defect in the penalty notice, where the inappropriate words are not struck off, vitiates the penalty. Similarly, the Hon'ble Bombay High Court in Pr. CIT vs. Golden Peace Hotels and Resorts (P) Ltd. also held that failure to strike off inapplicable portions of the penalty notice renders the penalty invalid. The Hon'ble Karnataka High Court in SSA Emeralds Meadows vs. CIT and the Hon'ble Apex Court upheld the view that an ambiguous penalty notice is void ab initio and bad in law. Additionally, the decision in CIT & Anr. vs. Manjunatha Cotton & Ginning Factory emphasized the importance of following principles of natural justice in levying penalties.The Court interpreted and reasoned that the failure to specify the limb on which the penalty was imposed in the notice renders the penalty invalid. The Court relied on the legal precedents mentioned above to conclude that the penalty notice must unambiguously specify the charge to allow the assessee to prepare a defense adequately. The Court emphasized that the principles of natural justice must be followed in penalty proceedings.Key evidence and findings include the penalty notices issued under section 274 r.w.s. 271(1)(c) of the Act, which did not specify the limb on which the penalty was imposed. The Court found that the AO had not struck off the inappropriate words in the notices, leading to ambiguity in the charges against the assessee.The application of law to facts involved a critical analysis of the penalty notices and the legal precedents cited. The Court applied the principle that penalties cannot be levied in a routine manner and that the notice must clearly specify the charge to ensure fairness to the assessee.Competing arguments were not explicitly mentioned in the judgment.Significant holdings:The Court held that the imposition of the penalty under section 271(1)(c) of the Income Tax Act, 1961 was invalid due to the failure to specify the limb on which the penalty was imposed in the notice. The Court set aside the orders of the ld. CIT(A) and directed the AO to delete the penalty from the hands of the assessee for the relevant years.Core principles established include the requirement for penalty notices to unambiguously specify the charge against the assessee to ensure fairness and adherence to principles of natural justice.Final determinations on each issue:The Court concluded that the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 was vitiated due to the ambiguity in the penalty notices, and therefore, directed the deletion of the penalties imposed on the assessee for the relevant years.In conclusion, the judgment focused on the importance of clarity and specificity in penalty notices to uphold the principles of natural justice and fairness in penalty proceedings.

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