2024 (7) TMI 960 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice u/s 274 - non specification of clear charge - additions on account of gift and undisclosed stock - HELD THAT - We note that the notice is an omnibus notice without specifying the specific charge upon the assessee and in such circumstances, Higher Courts have held that penalty levied is not sustainable. In this regard, we refer to case of Mr. Mohd. Farhan A. Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT (LB) wherein it has been held that no specification of charge in the penalty notice leads to same becoming void and penalty on that count is to be deleted. Thus, we note that due to defect in the penalty notice, penalty is not sustainable, hence the same is quashed. Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) for undisclosed stocks and unexplained gifts. Validity of penalty notice specifying charges.

Analysis:
The appeal was against the penalty imposed under section 271(1)(c) of the Income-tax Act for undisclosed stocks and unexplained gifts. The assessee contended that the penalty was unjustified as the issues were not part of the original assessment order and had been previously deleted by the ITAT. The assessee also argued that the penalty notice was defective as it did not specify the charge, rendering the penalty unsustainable.

The ITAT considered the arguments presented by both parties. The assessee raised the legal issue of the penalty notice being an omnibus notice without specifying the charge, which, according to the assessee, should lead to the penalty being quashed. The Revenue, on the other hand, relied on the decisions of the lower authorities and opposed the assessee's contentions.

Upon careful consideration, the ITAT observed that the penalty notice was indeed an omnibus notice without specifying the specific charge, which rendered it unsustainable. Citing precedents, including a decision of the Hon'ble Bombay High Court and the jurisdictional High Court, the ITAT concluded that a penalty notice must specify the grounds of the penalty proceedings clearly. Failure to do so makes the penalty notice defective and the penalty imposed thereunder void.

The ITAT, following the legal precedents, held that due to the defect in the penalty notice, the penalty was not sustainable and, therefore, quashed the penalty. As a result of quashing the penalty on the basis of the defective notice, the ITAT did not delve into the merits of the case, deeming them academic. Consequently, the appeal filed by the assessee was allowed, and the penalty was set aside.

In conclusion, the ITAT's decision focused on the importance of a penalty notice specifying the charges clearly to ensure the validity of the penalty imposed under section 271(1)(c) of the Income-tax Act. The judgment emphasized that an omnibus notice lacking specificity renders the penalty unsustainable, as established by legal precedents, leading to the quashing of the penalty in this case.