2024 (11) TMI 893 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - defective notice u/s 274 - omnibus notice - Non mentioning of charge for which penalty is to be levied - HELD THAT - An examination of the first notice reveal that it is in a preprinted performa, wherein both limbs of section 271(1)(c) of the Act have been mentioned. AO has not struck off irrelevant clauses in the preprinted performa. The omnibus notice is vague. The subsequent notice is equally ambiguous as the AO has not mentioned any of the limbs of section 271(1)(c) of the Act in the notice for which the penalty is to be levied. Non mentioning of charge for which penalty is to be levied makes the notice as much defective as non striking of irrelevant clauses in the notice. Both make the notice ambiguous and vague. Hence, the proceedings arising from defective notice are vitiated. Hon ble Jurisdictional High Court in the case of PCIT vs. Sahara India Life Insurance Company Ltd. 2019 (8) TMI 409 - DELHI HIGH COURT following the decision rendered in the case of CIT vs. Manjunatha Cotton Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT deleted penalty where the AO failed to clearly specify the limb of section 271(1)(c) of the Act for levy of penalty in the notice. Also in the case of Mohd. Farhan A Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT (LB) has held that where assessment order records satisfaction for imposing penalty on one or other or both grounds mentioned in section 271(1)(c) of the Act, a defect in notice in not striking of irrelevant matter would vitiate penalty proceedings. An omnibus notice suffers from the vice of vagueness. Assessee appeal allowed.

Summary

Issues:
Validity of penalty notices under section 271(1)(c) of the Income Tax Act, 1961.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) concerning the addition made on account of Advances written off and penalty proceedings initiated under section 271(1)(c) of the Income Tax Act, 1961. The appellant contended that the penalty notices were defective as they were ambiguous and invalid. The first notice dated 31.12.2009 mentioned both limbs of section 271(1)(c) without striking off irrelevant clauses, making it vague. The subsequent notice dated 07.06.2019 did not specify any limb for the penalty, rendering it equally defective. The appellant argued that penalties based on such defective notices were invalid.

During the proceedings, the department defended the penalty levied under section 271(1)(c) of the Act, stating that the Assessing Officer had specified the charge for the penalty in the assessment order itself. However, the appellant contended that the notices were defective, leading to ambiguity and invalidity. The Authorized Representative of the appellant argued that penalties could not be imposed based on such flawed notices.

The Tribunal examined both notices and found them to be defective and ambiguous. The failure to strike off irrelevant clauses in the preprinted form and the lack of specification of the charge for the penalty in the subsequent notice rendered them invalid. Citing precedents, including the case of PCIT vs. Sahara India Life Insurance Company Ltd., the Tribunal emphasized the importance of clearly specifying the limb of section 271(1)(c) for the penalty in the notice. The Tribunal also referred to the Full Bench decision of the Bombay High Court in the case of Mohd. Farhan A Shaikh vs. DCIT, highlighting that an omnibus notice lacking clarity would vitiate penalty proceedings.

Ultimately, the Tribunal set aside the impugned order and allowed the appeal of the assessee, emphasizing that penalty proceedings based on defective and ambiguous notices were not sustainable. The judgment was pronounced on November 18, 2024.