Facts of the Case

The Revenue filed three appeals before the Income Tax Appellate Tribunal against the order passed by the Commissioner of Income Tax (Appeals) [CIT(A)] dated 31.05.2023 concerning Assessment Years 2013-14, 2014-15 and 2015-16.

The dispute arose from penalty proceedings initiated by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961, wherein penalties of ₹2,87,54,268, ₹3,18,81,392, and ₹3,94,59,231 respectively were levied.

The CIT(A) had deleted the penalties. Aggrieved by the deletion, the Revenue preferred appeals before the ITAT seeking restoration of the penalties imposed by the Assessing Officer.

The Tribunal examined the validity of the penalty proceedings, particularly the show cause notices issued under Section 271(1)(c).

 

Issues Involved

1.      Whether penalty proceedings under Section 271(1)(c) are valid when the show cause notice does not clearly specify whether the penalty is for concealment of income or furnishing inaccurate particulars of income.

2.      Whether the CIT(A) was justified in deleting the penalties imposed by the Assessing Officer.

 

Petitioner’s Arguments (Revenue)

The Revenue contended that the assessee had failed to declare the corresponding rental income in its own hands, thereby attracting penalty under Section 271(1)(c).

It was argued that the actions of the assessee fell within the scope of both limbs of Section 271(1)(c), namely:

  • concealment of income, and
  • furnishing inaccurate particulars of income.

Accordingly, the Revenue sought reversal of the order of the CIT(A) and restoration of the penalties imposed by the Assessing Officer.

 

Respondent’s Arguments (Assessee)

The assessee argued that the penalty proceedings themselves were invalid because the show cause notices issued by the Assessing Officer dated 03.01.2022 did not specify the exact charge.

It was contended that the notices failed to indicate whether the penalty was proposed for:

  • concealment of income, or
  • furnishing inaccurate particulars of income.

Since the charge was ambiguous and not clearly specified, the penalty proceedings were legally unsustainable and liable to be quashed.

 

Court Findings / Court Order

The ITAT observed that the fundamental issue in the case was the validity of the penalty proceedings themselves.

The Tribunal noted that the show cause notices issued by the Assessing Officer did not specify the exact limb of Section 271(1)(c) under which the penalty was proposed.

Relying on judicial precedents, the Tribunal held that such failure to specify the charge vitiates the entire penalty proceedings.

  • PCIT vs Gopal Kumar Goyal (153 taxmann.com 534) (Delhi High Court)
  • PCIT vs Sahara Life Insurance Co. Ltd. (432 ITR 82) (Delhi High Court)
  • Mohd. Farhan A. Shaikh vs ACIT (434 ITR 1) (Bombay High Court – Full Bench)

Based on these precedents, the Tribunal concluded that the penalty notices were defective and therefore the penalty proceedings were invalid.

Accordingly, the Tribunal upheld the order of the CIT(A) and dismissed the appeals filed by the Revenue.

 

Important Clarification

The Tribunal clarified that when a show cause notice issued under Section 271(1)(c) fails to specify whether the penalty is for:

  • concealment of income, or
  • furnishing inaccurate particulars of income,

the notice becomes defective and the entire penalty proceedings become legally unsustainable.

Once the penalty proceedings themselves are invalid, all other issues on merits become academic and need not be adjudicated.

Link to download the order - 

https://itat.gov.in/public/files/upload/1736853939-M4rAyh-1-TO.pdf

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