2024 (3) TMI 1423 - AT - Income Tax

Penalty u/s. 271(1)(c) - defective notice u/s 274 - AO while framing the assessment u/s.147 r.w.s. 144B initiated penalty proceedings u/s.271(1)(c) for concealment of income but levied penalty u/s.271(1)(c) for furnishing of inaccurate particulars of income - HELD THAT - AO had in the SCN called upon the assessee to explain why he may not be subjected to penalty u/s 271(1)(c) for having concealed the particulars of income but thereafter vide a vague order had saddled his with a penalty for both the defaults i.e. concealed the particulars of income and furnished inaccurate particulars of income ; which thereafter was restricted to furnishing of inaccurate particulars while quantifying the amount of penalty in order u/s 271(1)(c) ; therefore the order so passed by him cannot be sustained and is liable to be struck down on the said count itself. AO had failed to discharge his statutory obligation of fairly putting the assessee to notice as regards the default for which he was being proceeded against therefore the penalty u/s 271(1)(c) imposed by him being in clear violation of the mandate of Sec. 274(1) of the Act cannot be sustained. We thus for the aforesaid reasons not being able to persuade ourselves to subscribe to the imposition of penalty by the A.O therefore set-aside the order of the CIT(A) who had upheld the same. Decided in favour of assessee.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment revolve around the validity of the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961. The key questions include:

Whether the penalty under Section 271(1)(c) was validly imposed when there was ambiguity regarding the specific charge of "concealment of income" or "furnishing inaccurate particulars of income".
Whether the failure to specify the exact charge in the Show Cause Notice (SCN) invalidates the penalty proceedings.
Whether the penalty proceedings are sustainable when the notice issued does not clearly indicate the limb under which the penalty is sought to be levied.

ISSUE-WISE DETAILED ANALYSIS

1. Ambiguity in the Charge under Section 271(1)(c)

Relevant Legal Framework and Precedents: Section 271(1)(c) of the Income-tax Act allows for penalties in cases of "concealment of income" or "furnishing inaccurate particulars of income". The Supreme Court in Reliance Petroproducts (P) Ltd. and other precedents have clarified that these are distinct charges.
Court's Interpretation and Reasoning: The Tribunal noted that the Assessing Officer (A.O.) failed to specify the exact charge in the SCN, leading to ambiguity. The court emphasized that penalty proceedings are quasi-criminal and require clear charges to be communicated to the assessee.
Key Evidence and Findings: The SCN and penalty order contained references to both "concealment of income" and "furnishing inaccurate particulars of income", reflecting a lack of clarity and non-application of mind by the A.O.
Application of Law to Facts: The Tribunal applied the principles from the Supreme Court's decisions, emphasizing that ambiguity in the charge undermines the validity of penalty proceedings.
Treatment of Competing Arguments: The Tribunal considered the assessee's argument, supported by precedents, that the lack of specificity in the charge invalidates the penalty.
Conclusions: The Tribunal concluded that the penalty could not be sustained due to the lack of clarity in the SCN and the penalty order.

2. Validity of the Show Cause Notice

Relevant Legal Framework and Precedents: Legal precedents, including the decisions in CIT Vs. SSA's Emerald Meadows and CIT Vs. Manjunatha Cotton and Ginning Factory, establish that a valid SCN must clearly specify the charge for which penalty is proposed.
Court's Interpretation and Reasoning: The Tribunal found that the SCN's failure to specify whether the penalty was for "concealment" or "furnishing inaccurate particulars" constituted a fundamental defect.
Key Evidence and Findings: The SCN used generic language without striking off the irrelevant parts, indicating a lack of specificity.
Application of Law to Facts: The Tribunal applied the principle that a vague SCN violates the principles of natural justice and the statutory requirement under Section 274(1).
Treatment of Competing Arguments: The Tribunal dismissed any argument suggesting that the ambiguity could be overlooked as a technical defect.
Conclusions: The Tribunal held that the penalty proceedings were invalid due to the defective SCN.

SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: The Tribunal stated, "The non-specifying of the charge in the 'Show cause' notice not only reflects the non-application of mind by the A.O but defeats the very purpose of giving a reasonable opportunity of being heard to the assessee as envisaged under Sec. 274(1) of the I.T. Act."
Core Principles Established: The judgment reinforces that penalty proceedings under Section 271(1)(c) must be based on clear and specific charges. Ambiguity in the SCN or penalty order invalidates the proceedings.
Final Determinations on Each Issue: The Tribunal quashed the penalty of Rs. 15,19,710/- imposed on the assessee, emphasizing that the penalty proceedings were vitiated by the lack of clarity and specificity in the SCN and penalty order.