2023 (7) TMI 501 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - non-strike off of the irrelevant part in the notice issued - HELD THAT - As in the case of Mr. Mohd. Farhan A. Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT while dealing with the issue of non-strike off of the irrelevant part in the notice issued u/s. 271(1)(c) of the Act, held that assessee must be informed of the grounds of the penalty proceedings only through statutory notice and an omnibus notice suffers from the vice of vagueness. Ratio of this full bench decision above squarely applies to the facts of the Assessee s case as the notice u/s. 274 r.w.s. 271(1)(c) of the Act was issued without striking off the irrelevant portion of the limb and failed to intimate the assessee the relevant limb and charge for which the notices were issued. Thus, by following the above ratio, we are of the opinion that, the penalty order passed u/s 271(1)(c) of the Act by the AO and the order of the CIT(A) in confirming the penalty order are erroneous. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of Penalty Orders Against a Deceased Person
2. Defective Notice for Penalty Proceedings
3. Reassessment and Penalty on Estimated Additions
4. Reopening of Assessment and Limitation Period

Summary:

1. Validity of Penalty Orders Against a Deceased Person:
The Tribunal noted that penalty orders were passed against the deceased, Sh. Ashok Malhotra, on 31/03/2017, despite his death on 30/06/2016. The legal heirs argued that such orders are null and void. The Tribunal agreed, citing established law that orders against a deceased person are invalid, irrespective of the Department's knowledge of the death. The Tribunal referenced multiple judicial pronouncements supporting this view, including ITO v. Bhupendra Bhikhalal Desai and ITO Ward 1(3)(7), Surat v. Durlabhbhai Kanubhai Rajpara.

2. Defective Notice for Penalty Proceedings:
The Tribunal observed that the penalty notices issued under Section 271(1)(c) of the Act were defective as they did not specify whether the penalty was for "concealment of income" or "furnishing inaccurate particulars." The Tribunal cited the Hon'ble Bombay High Court's full bench decision in Mr. Mohd. Farhan A. Shaikh v. ACIT, which held that an omnibus notice suffers from vagueness and non-application of mind, thus invalidating the penalty proceedings.

3. Reassessment and Penalty on Estimated Additions:
The Tribunal noted that the penalty was levied on estimated additions, which is not correct. The reassessment order included additions for income from undisclosed sources, purchase of a car, unexplained bank deposits, and household expenses, totaling Rs. 48,98,880/-. The penalty proceedings initiated without specifying the exact limb of the penalty were deemed invalid.

4. Reopening of Assessment and Limitation Period:
The Tribunal found that the reopening of the assessment was bad in law and barred by limitation. The reassessment was completed on 15/12/2011, and the penalty proceedings were initiated on 14/03/2012. However, the penalty order was passed on 31/03/2017, against a deceased person, rendering it invalid.

Conclusion:
The Tribunal quashed the penalty orders for Assessment Year 2001-02 and Assessment Years 2004-05 to 2012-13, allowing the appeals filed by the legal heirs of Sh. Ashok Malhotra. The orders were pronounced in open court on 10th July 2023.