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2025 (3) TMI 1428 - AT - Income TaxPenalty u/s 271(1)(c) - non specification of clear charge - defective notice u/s 274 - AR submit that from the perusal of the notice it could be seen that it was not specified whether the penalty proceedings were initiated for concealment of particulars of income or for furnishing inaccurate particulars of income - HELD THAT - The penalty provisions of section 271(1)(c) are attracted where the assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is also a well-accepted proposition that the aforesaid two limbs of section 271(1)(c) of the Act carry different meanings. Therefore it was imperative for the Assessing Officer to strike- off the irrelevant limb so as to make the assessee aware as to what is the charge made against him so that he can respond accordingly. Hon ble Supreme Court in the case of Dilip N. Shroff 2007 (5) TMI 198 - SUPREME COURT has also noticed that where the AO issues notice under section 274 of the Act in the standard proforma and the inappropriate words are not deleted the same would postulate that the Assessing Officer was not sure as to whether he was to proceed on the basis that the assessee had concealed the particulars of his income or furnished inaccurate particulars of income. According to the Hon ble Supreme Court in such a situation levy of penalty suffers from non application of mind. In the background of the aforesaid legal position and having regard to the manner in which the Assessing Officer has issued notices under section 274 r.w.s. 271(1)(c) of the Act without striking off the irrelevant words as reproduced above the penalty proceedings shows the non-application of mind by the Assessing Officer and is thus unsustainable. Appeal of the assessee is allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal issue considered in this judgment is whether the penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act, 1961, were validly conducted. Specifically, the question is whether the failure to specify the exact limb of Section 271(1)(c) - either "concealment of income" or "furnishing inaccurate particulars of income" - renders the penalty proceedings and the consequent penalty order invalid. 2. ISSUE-WISE DETAILED ANALYSIS Relevant legal framework and precedents Section 271(1)(c) of the Income Tax Act, 1961, provides for the imposition of a penalty on an assessee if it is found that they have either concealed the particulars of their income or furnished inaccurate particulars of such income. The section requires the Assessing Officer (AO) to record their satisfaction regarding the specific limb under which the penalty is being initiated. The legal precedents relevant to this issue include the decisions in CIT vs. Manjunatha Cotton & Ginning Factory, CIT vs. SSA's Emerald Meadows, and Dilip N. Shroff vs. JCIT, which emphasize the necessity for clarity in specifying the limb under which penalty proceedings are initiated. Court's interpretation and reasoning The Tribunal interpreted that the penalty notice issued to the assessee did not specify whether the penalty proceedings were for "concealment of particulars of income" or for "furnishing inaccurate particulars of income." This lack of specificity was deemed a significant procedural defect. The Tribunal relied on the precedent set by the Karnataka High Court in Manjunatha Cotton & Ginning Factory, which held that the failure to specify the limb indicates non-application of mind by the AO and renders the penalty proceedings invalid. Key evidence and findings The Tribunal examined the notice issued under Section 274 read with Section 271(1)(c) and found that it was issued in a standard proforma without striking off the irrelevant parts, thus failing to specify the exact charge against the assessee. This was a key piece of evidence leading to the conclusion that the penalty proceedings were initiated without proper application of mind. Application of law to facts Applying the legal principles from the precedents, the Tribunal found that the AO's failure to specify the exact charge in the penalty notice deprived the assessee of the opportunity to respond appropriately to the allegations. This procedural lapse was sufficient to invalidate the penalty proceedings and the consequent penalty order. Treatment of competing arguments The Department argued that the AO had recorded satisfaction in the assessment order regarding the furnishing of inaccurate particulars of income and that the penalty was levied accordingly. However, the Tribunal found that the absence of specificity in the penalty notice itself was a critical defect that could not be cured by the contents of the assessment order. The Tribunal favored the assessee's argument, supported by judicial precedents, that the penalty notice must explicitly state the limb under which proceedings are initiated. Conclusions The Tribunal concluded that the penalty proceedings were invalid due to the failure to specify the limb under Section 271(1)(c) in the penalty notice. Consequently, the penalty order was quashed. 3. SIGNIFICANT HOLDINGS The Tribunal's significant holding is that a penalty notice under Section 271(1)(c) must clearly specify whether the proceedings are for "concealment of income" or "furnishing inaccurate particulars of income." Failure to do so renders the penalty proceedings and any consequent order invalid. This holding reinforces the principle that procedural fairness and clarity are essential in penalty proceedings. Verbatim quotes from the judgment include: "The penalty proceedings initiated without recording the satisfaction is liable to be quashed." "The standard proforma of notice under section 274 of the Act without striking of the irrelevant clauses would lead to an inference of non-application of mind by the Assessing Officer." The core principle established is the necessity for the AO to clearly specify the charge against the assessee in the penalty notice to ensure procedural fairness and allow the assessee to respond appropriately. Final determination on the issue is that the penalty order under Section 271(1)(c) is quashed, and the appeal of the assessee is allowed.
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