2025 (4) TMI 596 - AT - Income Tax

Penalty u/s 271(1)(c) - non specification of clear charge - addition confirmed was in the nature of estimated income - HELD THAT - Whether the penalty proceedings initiated u/s 271(1)(c) of the Act is correct or not in the instant case is a pure question of law as it does not involve any investigation or inquiry with regard to any fact. The question of law clearly arises from the facts as found by the authorities below and it has bearing on liability of the assessee. Penalty is in addition to tax liability of the assessee. It entails serious civil consequences to the assessee too. We conquer with the contention of Ld. AR that it is incumbent upon the revenue to state expressly in the notice(s) supra the material ingredients of Section 271(1)(c) of the Act. The authorities must specify as to whether the case is one of concealment of particulars of income or furnishing inaccurate particulars of income. In the instant case nothing is spelt out by the Revenue save and except bare Section 271(1)(c) of the Act which perse is not sufficient compliance of law. While issuing notice(s) for penal proceeding authorities must be clear in their mind at the time of issue itself as to whether charge of concealment of particulars of income would hold or whether the charge of furnishing inaccurate particulars of income would hold. Failure to mention either of these charges within the meaning of Section 271(1)(c) of the Act would vitiate the entire penal proceedings against the assessee. See Kulwant Singh Bhatia 2018 (5) TMI 960 - MADHYA PRADESH HIGH COURT Decided in favour of assessee.

ISSUES PRESENTED and CONSIDERED

The core legal issue in this case revolves around the imposition of penalties under Section 271(1)(c) of the Income Tax Act, 1961. Specifically, the Tribunal considered whether the penalty proceedings initiated against the assessee were valid, given that the notices issued did not specify whether the penalties were for concealment of income or for furnishing inaccurate particulars of income. Additionally, the Tribunal examined whether the penalty could be imposed on income that was determined on an estimated basis.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Penalty Proceedings under Section 271(1)(c)

Relevant Legal Framework and Precedents: Section 271(1)(c) of the Income Tax Act provides for the imposition of penalties on an assessee if they have concealed the particulars of their income or furnished inaccurate particulars of such income. The legal requirement is that the notice issued to the assessee must clearly specify the charge against them. Precedents such as the judgment in PCIT vs Kulwant Singh Bhatia emphasize the necessity of specifying the charge in the penalty notice.

Court's Interpretation and Reasoning: The Tribunal noted that the notices issued to the assessee were vague and did not specify whether the penalties were for concealment of income or for furnishing inaccurate particulars. This lack of specificity was deemed a violation of the principles of natural justice and rendered the penalty proceedings invalid.

Key Evidence and Findings: The Tribunal found that the notices issued to the assessee merely cited Section 271(1)(c) without specifying the applicable charge. This omission was critical as it left the assessee unaware of the exact nature of the allegations against them.

Application of Law to Facts: The Tribunal applied the legal principles established in previous judgments and concluded that the failure to specify the charge in the penalty notice invalidated the penalty proceedings.

Treatment of Competing Arguments: The Revenue argued that the assessee had participated in the proceedings and had not raised this issue at earlier stages. However, the Tribunal held that the legal requirement for specificity in the notice was paramount and could be raised at any stage.

Conclusions: The Tribunal concluded that the penalty proceedings were invalid due to the lack of specificity in the notices issued under Section 271(1)(c).

2. Penalty on Estimated Income

Relevant Legal Framework and Precedents: Penalties under Section 271(1)(c) are not typically imposed on income determined on an estimated basis, as such determination lacks the precision required for penal action.

Court's Interpretation and Reasoning: The Tribunal observed that the income in question was determined based on an estimated net profit rate, which was applied uniformly across several assessment years. This estimation was not based on concrete evidence of concealment or inaccurate particulars.

Key Evidence and Findings: The Tribunal noted that the estimation was a result of the assessee's inability to produce complete records, rather than any deliberate concealment or misrepresentation.

Application of Law to Facts: The Tribunal applied the principle that penalties should not be imposed on estimated income, as the estimation process inherently involves a degree of uncertainty.

Treatment of Competing Arguments: The Revenue contended that the estimation was necessary due to the assessee's failure to maintain proper records. However, the Tribunal emphasized that penalties require a higher standard of proof than mere estimation.

Conclusions: The Tribunal concluded that penalties under Section 271(1)(c) were not applicable to the estimated income in this case.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal emphasized, "Failure to mention either of these charges within the meaning of Section 271(1)(c) of the Act would vitiate the entire penal proceedings against the assessee."

Core Principles Established: The necessity for specificity in penalty notices under Section 271(1)(c) was reaffirmed. The Tribunal also reinforced the principle that penalties should not be imposed on income determined through estimation.

Final Determinations on Each Issue: The Tribunal allowed the appeal, setting aside the penalty imposed under Section 271(1)(c) due to the invalidity of the penalty proceedings and the inapplicability of penalties on estimated income.

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