2023 (8) TMI 962 - AT - Income Tax

Penalty u/s. 271(1)(c) - failure to point out specific default in both the Show Cause notices issued u/s 274 r.w.s 271 - HELD THAT - As failure on the part of the A.O to clearly put the assessee to notice as regards the default for which penalty u/s 271(1)(c) was sought to be imposed on him by clearly and explicitly pointing out the specific defaults in the SCN(s) for which he was called upon to explain that as to why penalty u/s. 271(1)(c) of the Act may not be imposed upon him, had, thus, left the assessee guessing of the default for which he was being proceeded against, and had divested him of an opportunity to put forth an explanation before the A.O that no such penalty was called for in his case A.O had clearly failed to discharge his statutory obligation of fairly putting the assessee to notice as regards the defaults for which he was being proceeded against, therefore, the penalty under Sec. 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.

Summary

Issues Involved:
1. Validity of the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961.
2. Adequacy and specificity of the "Show Cause" notices issued by the Assessing Officer (A.O).

Summary:

Validity of the Penalty Imposed under Section 271(1)(c):

The assessee challenged the penalty of Rs. 1,53,000/- imposed under Section 271(1)(c) of the Income-tax Act, 1961, for furnishing inaccurate particulars of income. The penalty was based on an addition of Rs. 4,94,743/- towards unaccounted money introduced as long-term capital gain (LTCG) claimed as exempt under Section 10(38) of the Act. The CIT(Appeals) upheld the penalty, which the assessee further contested before the ITAT.

Adequacy and Specificity of the "Show Cause" Notices:

The key contention was that the A.O. issued two "Show Cause" notices (SCNs) dated 30.12.2016 and 22.05.2017, without specifying the exact default'whether it was for "concealment of income" or "furnishing of inaccurate particulars of income." The use of "OR" between the two defaults in the SCNs did not clearly convey the specific charge, leaving the assessee guessing and unable to mount a proper defense.

The ITAT observed that the failure to strike off the irrelevant default in the SCNs indicated non-application of mind by the A.O. This failure to specify the exact charge violated the statutory obligation under Section 274(1) of the Act, thereby invalidating the penalty proceedings.

The ITAT relied on several judicial pronouncements, including decisions from the Hon'ble Supreme Court and various High Courts, which emphasized the necessity of specifying the exact charge in penalty proceedings. These precedents established that non-specific SCNs render penalty proceedings invalid due to lack of proper notice and opportunity for the assessee to defend.

Conclusion:

The ITAT concluded that the penalty imposed under Section 271(1)(c) was unsustainable due to the A.O.'s failure to specify the exact default in the SCNs. Consequently, the penalty of Rs. 1,53,000/- was quashed. The ITAT did not address other grounds of appeal related to the merits of the case, as the penalty was quashed on jurisdictional grounds.

Order:

The appeal of the assessee was allowed, and the penalty imposed by the A.O. was quashed. The order was pronounced in open court on 18th August 2023.