2024 (12) TMI 1419 - AT - Income Tax

Penalty u/s 270A for misreporting of income - non specification of clear charge - Argument of AR is that no specific charge has been framed against the assessee in first show-cause notice - HELD THAT - In the assessment order, Ld. AO has not specified the exact charge against the assessee but initiated penalty proceedings simplicitor. In the show-cause notice issued to the assessee u/s 274 r.w.s. 270A on 18-12-2019, Ld. AO initiated penalty on both the limbs i.e., under-reporting as well as misreporting of income. Finally, in the penalty order, AO held that it was a case of under-reporting of income in consequence of misreporting of income. Therefore, it was a fit case for levy of penalty u/s 270A(9)(a). We find that no specific charge has been framed against the assessee in the show-cause notice - Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the penalty imposed under Section 270A of the Income Tax Act for under-reporting and misreporting of income is valid when the show-cause notice does not specify the exact charge.
Whether the penalty proceedings under Section 270A are mandatory and can be initiated without providing a specific charge or reasonable opportunity to the assessee.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Penalty under Section 270A

Relevant legal framework and precedents: Section 270A of the Income Tax Act deals with penalties for under-reporting and misreporting of income. The legal framework requires clear specification of the charge under which the penalty is imposed. The precedents cited include the decision in the case of M/s Enrica Enterprises Pvt. Ltd., where similar issues were adjudicated.
Court's interpretation and reasoning: The court emphasized that the penalty provisions under Section 270A have two distinct limbs: under-reporting and misreporting of income. Each requires a specific charge, and they cannot be used interchangeably. The court found that the show-cause notice issued to the assessee was vague and did not specify under which limb the penalty was being proposed.
Key evidence and findings: The assessment order and penalty notice did not clearly specify whether the penalty was for under-reporting or misreporting. The court noted that the absence of a specific charge in the show-cause notice constituted a violation of natural justice principles.
Application of law to facts: The court applied the legal principles from previous cases, noting that without a clear charge, the penalty proceedings were invalid. The lack of specificity in the show-cause notice meant the assessee was not given a fair opportunity to defend against the penalty.
Treatment of competing arguments: The appellant argued that the penalty was invalid due to the lack of a specific charge, while the respondent supported the penalty's imposition. The court sided with the appellant, finding the penalty notice deficient.
Conclusions: The court concluded that the penalty imposed was invalid due to the vague and non-specific nature of the show-cause notice, which failed to adhere to the principles of natural justice.

Issue 2: Mandatory Nature of Penalty Proceedings

Relevant legal framework and precedents: The court referred to Section 270A and the procedural requirements under Section 274, which mandate that the assessee be given a reasonable opportunity to be heard before a penalty is imposed. The court also referenced prior case law, including decisions from the Supreme Court and High Courts, which emphasized the need for specificity in penalty notices.
Court's interpretation and reasoning: The court reasoned that penalty proceedings under Section 270A are not mandatory in nature. The Assessing Officer (AO) must provide a clear charge and reasonable opportunity for the assessee to respond, as required under Section 274.
Key evidence and findings: The court found that the notice issued under Section 274 read with Section 270A did not specify whether the penalty was for under-reporting or misreporting, thus failing to meet the statutory requirements.
Application of law to facts: The court applied the principle that penalty proceedings require clear notification of the charge and an opportunity for the assessee to contest it. The failure to specify the charge rendered the penalty proceedings void.
Treatment of competing arguments: The appellant argued that the penalty was not mandatory and that the lack of specificity in the notice invalidated the proceedings. The respondent argued for the penalty's validity. The court found in favor of the appellant.
Conclusions: The court concluded that the penalty proceedings were not mandatory and that the failure to specify the charge in the notice invalidated the penalty.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The concepts of 'under reporting of income' and 'misreporting of income' are two different charges with very clear boundaries... Therefore, 'under reporting of income' and 'misreporting of income' shall not be used interchangeably nor are they synonymous, but each operates under strict definition and do not overlap each other."
Core principles established: The court established that penalty proceedings under Section 270A require a specific charge to be framed against the assessee, and the failure to do so violates principles of natural justice. The penalty is not mandatory and requires a proper show-cause notice.
Final determinations on each issue: The court determined that the penalty imposed under Section 270A was invalid due to the lack of a specific charge in the show-cause notice. The penalty proceedings were quashed, and the penalty was directed to be deleted.

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