2023 (10) TMI 1198 - AT - Income Tax

Penalty proceedings u/s.271(1)(c) - Defective notice - as argued AO had failed to strike-off the irrelevant default while calling upon the assessee to explain as to why he may not be subjected to penalty u/s 271(1)(c) - HELD THAT - 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. We, thus, are of a strong conviction that as the 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 u/s 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., set aside the order of the CIT(A) who had upheld the same. Thus penalty imposed by the A.O u/s 271(1)(c) is quashed - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of Penalty under Section 271(1)(c) of the Income Tax Act.
2. Specificity of defaults in Show Cause Notices (SCNs) issued under Section 274 read with Section 271(1)(c).

Summary:

1. Validity of Penalty under Section 271(1)(c) of the Income Tax Act:
The appeal by the assessee challenges the penalty order under Section 271(1)(c) of the Income Tax Act, 1961, imposed by the Assessing Officer (A.O) and upheld by the Commissioner of Income-Tax (Appeals). The A.O had originally assessed the income of the assessee by adding unexplained cash deposits and undisclosed profit from share trading, leading to a penalty of Rs. 3,96,750/-. The CIT(A) upheld this penalty, noting the assessee's failure to explain the source of cash credits and undisclosed income during both assessment and appellate proceedings.

2. Specificity of defaults in Show Cause Notices (SCNs) issued under Section 274 read with Section 271(1)(c):
The assessee argued that the A.O failed to specify the exact default in the SCNs dated 29.12.2017 and 31.12.2017, which mentioned both "concealment of income" and "furnishing of inaccurate particulars of income" without striking off the irrelevant part. This lack of specificity allegedly deprived the assessee of a clear opportunity to defend against the penalty. The Tribunal observed that the SCNs did not validly convey the specific default, thus violating the statutory obligation to inform the assessee clearly. The Tribunal held that this failure rendered the penalty proceedings invalid.

Conclusion:
The Tribunal quashed the penalty of Rs. 3,96,750/- imposed under Section 271(1)(c), citing the A.O's failure to specify the exact default in the SCNs, which violated the mandate of Section 274(1). Consequently, the appeal was allowed, and the penalty order was set aside. The Tribunal refrained from addressing other contentions regarding the merits of the case.