2025 (2) TMI 978 - AT - Income Tax

Penalty u/s 271(1)(c) - allegation of defective notice - non specification of clear charge - HELD THAT - AO initiated the penalty proceedings by issuing the notice u/s 274/271(1)(c) of the Act without specifying whether the assessee has concealed particulars of income or assessee has furnished inaccurate particulars of income so as to provide adequate opportunity to the assessee to explain the show cause notice. Rather notices in this case have been issued in a stereotyped manner without applying any mind which is bad in law hence is not a valid notice sufficient to impose penalty u/s 271(1)(c). AO has issued notices under section 274 r.w.s. 271(1)(c) of the Act without striking off the irrelevant words the penalty proceedings shows the non-application of mind by the Assessing Officer and is thus unsustainable. Appeal of the assessee is allowed.

Summary

The issues presented and considered in the legal judgment are as follows:1. Whether the penalty imposed under section 271(1)(c) of the Income Tax Act for furnishing inaccurate particulars of income is valid when the initiation notice did not specify the basis for penalty.2. Whether the failure to specify the limb under which the penalty proceedings were initiated renders the penalty order unsustainable.Issue-Wise Detailed Analysis:The relevant legal framework and precedents considered in this case include Section 271(1)(c) of the Income Tax Act, which provides for penalties for concealing income or furnishing inaccurate particulars of income. The court also relied on the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory and the judgment of the Hon'ble Supreme Court in the case of M/s. SSA's Emerald Meadows.The court interpreted that under Section 271(1)(c) of the Act, the Assessing Officer (AO) must record satisfaction that the assessee has either concealed income or furnished inaccurate particulars of income. The court found that the penalty proceedings were initiated without specifying the limb for which the penalty was being imposed, violating the requirement of the law.Key evidence and findings included the notices issued by the AO, which did not specify whether the penalty proceedings were initiated for concealing income or furnishing inaccurate particulars of income. The court noted that the AO failed to strike off the irrelevant limb in the notices, leading to ambiguity and non-application of mind.The court applied the law to the facts by emphasizing the importance of providing the assessee with a clear understanding of the charges against them to enable a proper response. The court cited precedents that highlighted the necessity of clearly specifying the basis for initiating penalty proceedings.Treatment of competing arguments involved the Assessee arguing for the deletion of the penalty due to the lack of specification in the initiation notices, while the Department supported the lower authorities' orders. The Department contended that the penalty was rightly imposed for furnishing inaccurate particulars of income.The court concluded that the penalty proceedings were initiated without recording the satisfaction required by law and, therefore, quashed the penalty. The court held that the failure to specify the limb under which the penalty proceedings were initiated rendered the penalty order unsustainable.Significant Holdings:The core principle established in this judgment is that the penalty provisions of Section 271(1)(c) of the Income Tax Act require the AO to specify whether the penalty is for concealing income or furnishing inaccurate particulars of income. The final determination on the issue was the deletion of the penalty imposed under Section 271(1)(c) due to the failure to specify the basis for the penalty in the initiation notices.The court's decision was based on the legal requirement for clarity in penalty proceedings and the necessity for the AO to specify the grounds for initiating penalties under Section 271(1)(c) of the Act. The judgment emphasized the importance of providing the assessee with a clear understanding of the allegations to enable a fair and informed response.Overall, the court's ruling in this case highlights the significance of procedural compliance and clarity in penalty proceedings under the Income Tax Act to ensure fairness and adherence to legal requirements.